TLDR:
- Kevin Hassett expects US GDP growth to reach 4% next year amid an increase in investment.
- AI-driven productivity gains could raise the long-term growth potential to around 2%.
- Hassett says the Fed risks appearing biased by delaying further rate cuts.
- Softer duties and fiscal uncertainty may be temporary, linked to the recent shutdown.
Former NEC director Kevin Hassett said US economy is positioned for robust growth next year, with 4% expansion driven by an increase in investment and productivity.
He cited a nationwide boom in factory construction and machinery purchases, calling it one of the biggest waves of investment in modern history. Hassett added that AI-driven efficiency gains are increasing worker output and driving underlying productivity growth toward 2%.
However, he warned that political indecision in Congress and monetary hesitation from the Federal Reserve could slow this recovery.
Hassett, speaking on Fox Business to Maria Bartiromo, described the current capital formation as a turning point for American industry. He noted that when companies commit to long-term investment in production, the ripple effect increases employment and income growth.
The former adviser said the momentum from AI and infrastructure development could fuel a new “golden age” of economic expansion, provided fiscal and monetary policy aligns.
The Fed’s inaction could deepen the political divide
Hassett criticized the Federal Reserve’s recent stance, suggesting the central bank appears biased for holding off on further rate cuts despite favorable conditions.
Referring to recent inflation data, he pointed out that prices have cooled faster than expected, with Bloomberg surveys showing over 40 economists forecasting weaker inflation prints. He argued that these improvements, combined with growth headwinds from the government shutdown, warrant further easing in December.
He noted that the Fed’s September meeting signaled three rate cuts ahead, but in October policymakers backed away from that guidance.
According to Hassett, nothing material changed between these meetings except for a temporary BNP pull from the shutdown. He said this shift in tone raises concerns that political calculations could influence monetary decisions.
Hassett also suggested the Fed’s credibility could face renewed pressure if it ignores softer working conditions. While the labor market has cooled somewhat, he attributed that softness to uncertainty caused by ongoing budget problems in Washington.
He argued that when the government reopens, employment should stabilize and growth will resume its upward trajectory.
The economist concluded that the Fed’s reluctance to act runs counter to its own data-driven principles. He warned against failing to deliver one speed a cut in December would be difficult to justify to both markets and the public.
