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Lisa Abramowicz

Debt Traders Aren't Buying 3% Growth

Tax-cut details are sketchy, but the numbers that are there don't work.
Photographer: Andrew Harrer/Bloomberg

Wall Street almost uniformly disagrees with Treasury Secretary Steven Mnuchin's assessment that 3 percent economic growth in the U.S. is "very, very doable" over the next decade.

This is important. If Mnuchin's assessment is wrong, the U.S. budget will miss out on an estimated $2 trillion of income that he and President Donald Trump are relying on to make their new tax plan work. In other words, if he's incorrect, the nation's deficit will likely expand by trillions of dollars without generating a huge economic expansion.

This week, Trump unveiled a sketchy plan to cut corporate and household taxes. The devil will be in the details, of which there are relatively few. And it's unclear whether Republicans can coalesce around a concrete plan in the near term. But Trump gave a sense of what he was aiming for.

In the wake of the announcement, Mnuchin doubled down on earlier claims that such changes would make it easy to achieve 3 percent growth. His expectations were roundly dismissed at the time, and traders and economists still aren't buying into Mnuchin's visions for economic growth. Just take a look at market moves after Trump's tax announcement on Wednesday. A gauge of expected inflation rates over the next 10 years remained well below 2 percent.  

Traders didn't exactly flee longer-term bonds in a meaningful way, which is what you'd expect if growth and inflation were going to pick up. While yields on 30-year Treasuries have risen this week, they're still below this year's average of 2.9 percent.