Former Federal Reserve Chairman Ben Bernanke warned that the Trump administration’s massive, unfunded $1.5 trillion tax cut and about $300 billion in new spending pose serious problems for the future.
“What you are getting is a stimulus at the very wrong moment,” Bernanke said at the American Enterprise Institute, a Washington think tank, Bloomberg reported Thursday. “The economy is already at full employment.”
Stimulus packages are used when the economy is flagging. When the economy does slump in the future, there may be few reserves to spend to get it going again. Bernanke predicted a “Wile E. Coyote” moment when the fallout hits, referring to the endlessly failing character in the “Road Runner” cartoons.
The stimulus “is going to hit the economy in a big way this year and next year, and then in 2020, Wile E. Coyote is going to go off the cliff,” Bernanke warned.
The Congressional Budget Office forecast in April that the stimulus would lift growth to 3.3 percent this year and 2.4 percent in 2019. It was already at 2.6 percent in 2017 before the tax cut. The CBO predicts growth will slow to 1.8 percent in 2020, when Trump’s first term will be ending.
Bernanke was chairman of the Fed from 2006 to 2014 and is currently a fellow at the Brookings Institute.