Goldman Sachs just sought to put a punctuation mark at the end of a Trump-inspired market rally that’s recently been losing steam. The firm, in a Friday night note to clients, threw cold water on expectations for sweeping tax reform, major new investments in infrastructure and regulatory rollbacks that had been driving post-election giddiness on Wall Street. Instead, Goldman’s chief economist Jan Hatzius writes, Republicans ruling both ends of Pennsylvania Avenue are getting bogged down in a knotty internal squabble over how to replace Obamacare—and diverted by the ongoing headaches from the political and legal challenges to President Trump’s travel ban.
And while prospects for those campaign pledges that would have goosed growth look more remote, the bank notes that Trump is likely to follow through on trade and immigration crackdowns that “could be disruptive for financial markets and the real economy.” In sum, Hatzius writes, “one month into the year, the balance of risks is somewhat less positive in our view.”
Maybe most strikingly, Goldman—which speaks with some authority, having launched Trump’s handpicked Treasury Secretary, his chief strategist, and his top economic brain, among other key aides—is trimming hopes for a big public-works program. Trump’s guarantee that he’d repair the nation’s decrepit infrastructure formed the crux of his promise to the Rust Belt voters who lifted him to victory, and the push for such a project looked primed to scramble partisan allegiances on Capitol Hill.
But as the bank notes, old habits die hard: “The political environment appears to be as polarized as ever, suggesting that issues that require bipartisan support may be difficult to address.” It’s conceivable that Trump could have leveraged his victory immediately to peel off Democratic votes in Congress for a rebuilding initiative. We’ll never know. He squandered that potential on the travel ban and by indulging the Congressional Republican itch to rip up the healthcare law, a campaign that’s provoked what over the weekend began to resemble a Tea Party-style grassroots protest movement on the left.
As a consequence, Goldman has downgraded Trump’s promised trillion-dollar spending boom to a relative trickle of $25 billion a year.
Likewise, the across-the-board cuts to tax rates Trump said he’d swiftly deliver may be tougher to come by. In a pre-Super Bowl interview with Fox News’ Bill O’Reilly, the president on Sunday renewed his optimism that lawmakers will send him a tax reform bill he can sign by the end of the year. But Goldman, echoing updated assessments of other tax watchers, says it’s likely that package will slip into next year. Given the complexity of the task, and the big money already choosing sides in the debate over its shape, chances of a quick victory have already faded. And the odds for anything that slips into next year only grow longer as the midterm elections swing into view.