{"id":649630,"date":"2026-05-04T19:42:34","date_gmt":"2026-05-04T19:42:34","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/649630\/"},"modified":"2026-05-04T19:42:34","modified_gmt":"2026-05-04T19:42:34","slug":"donald-trump-is-a-threat-to-americas-economic-growth-2","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/649630\/","title":{"rendered":"Donald Trump is a threat to America\u2019s economic growth"},"content":{"rendered":"

May 4, 2026 \u2014 9:58am<\/p>\n

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The US economy is being held up by the massive investment in artificial intelligence and spending by high-income households. The war in the Middle East, however, poses an increasing threat to its underlying vulnerabilities.<\/p>\n

US Commerce Department data late last week showed the economy grew at an annual rate of 2 per cent in the March quarter, slightly below expectations of 2.2 to 2.3 per cent growth.<\/p>\n

\"TheThe US economy is vulnerable to a number of growing threats.AP<\/p>\n

More than half of that relatively modest growth, however, came from business spending, which reflects the enormous spending by the AI companies. The \u201chyperscalers\u201d \u2013 the biggest tech companies, like Meta, Amazon, Microsoft and Google \u2013 are expected to invest about $US750 billion ($1.04 trillion) in AI and its infrastructure this year.<\/p>\n

Consumer spending held up \u2013 personal consumption spending grew 1.6 per cent in the quarter \u2013but that is largely due to high-income families that have benefited from the wealth effects of a booming sharemarket.<\/p>\n

Research released by the New York Federal Reserve Bank on Friday showed that, since the pandemic ended, spending by high-income households has grown at a cumulative real rate of 7.6 per cent. Spending by low-income households has risen by just over 1 per cent.<\/p>\n

Related Article\"Kevin<\/a><\/p>\n

It\u2019s a \u201cK-shaped\u201d economy,<\/a> with middle and lower income households now tapping their savings, with the US savings rate at its lowest since late 2022, during the worst of the post-pandemic global supply chain shocks.<\/p>\n

The period covered by last week\u2019s data, which is subject to what are often large-scale revisions, includes only one month of the war in Iran, which has sent oil prices \u2013 and subsequently gasoline and diesel prices \u2013 soaring around the world<\/a>.<\/p>\n

Before the US and Israel attacked Iran, and before Iran\u2019s retaliation closed the Strait of Hormuz and damaged regional energy infrastructure, sending global oil prices soaring above $US100 a barrel, the average US gasoline price was below $US3 a gallon and diesel was selling for about $US3 a gallon. Now, the average gasoline price is $US4.45 a gallon and diesel sells at $US5.64 a gallon.<\/p>\n

That steep increase in energy costs will flow into an inflation rate that is already heading in the wrong direction.<\/p>\n

Last week\u2019s personal consumption expenditures (PCE) data \u2013 the inflation metric most relied on by the Federal Reserve Board \u2013 showed the PCE index rose 0.7 per cent in March, relative to February, and 3.5 per cent higher than a year earlier. The monthly increase was the biggest since 2022.<\/p>\n

\"USUS consumers are grappling with soaring fuel prices.AP<\/p>\n

\u201cCore\u201d prices \u2013 those excluding energy and food prices \u2013 were 3.2 per cent higher than a year ago. The Fed\u2019s inflation target is 2 per cent.<\/p>\n

The pressure on the inflation rate, even before the full effects of the war in the Middle East flow through, explains why there were, most unusually, dissenters at last week\u2019s Fed Open Market Committee meeting<\/a>.<\/p>\n

Three members of the committee that sets US monetary policy argued against the inclusion of wording in the Fed\u2019s statement after its meeting that implied an easing bias because they believed the Fed\u2019s next rate move could be either a cut or a hike, depending on the duration of the war.<\/p>\n

Related Article\"Anthony<\/a><\/p>\n

With the US and Iran unable to negotiate an acceptable exit route from the hostilities, the war could drag on<\/a>.<\/p>\n

The longer it persists and energy prices remain high, the greater the risk that higher inflation will be embedded within economies and within inflation expectations and the greater the likelihood — regardless of what the Donald Trump wants from his incoming Fed chair, Kevin Warsh<\/a> \u2013 that the US will, as the Reserve Bank is being forced to do, raise interest rates to try to bring the inflation rate under control.<\/p>\n

Even excluding the earliest effects of the war, however, there was a pre-existing inflation threat, with core inflation steadily creeping up in recent months.<\/p>\n

That may have something \u2013 inevitably has a lot to do \u2013 to do with Trump\u2019s tariffs, which added more than $US175 billion to the cost of goods to US companies and consumers last year.<\/p>\n

While the majority of those tariffs have been ruled illegal by the US Supreme Court, the Trump administration has maintained most of them, using a different (and also arguably illegal) legislative heading while it works on a longer-term alternative.<\/p>\n

\"AnyAny stumble in delivering on the markets\u2019 optimistic expectations of the eventual commercial returns from AI could cause a convulsive shakeout.Bloomberg<\/p>\n

The prices of tariff-exposed sectors rose sharply in the March quarter. Clothing and footwear prices rose 6.8 per cent, household furnishings 5.9 per cent and recreational vehicles and goods more than 20 per cent.<\/p>\n

The impact of the tariffs essentially offset the benefits to those households that gained from the big tax cuts in Trump\u2019s One Big Beautiful Bill last year, which had been expected to provide a larger boost to growth.<\/p>\n

They also provide shelter \u2013 because of the reduced competition from imports \u2013 for continuing price rises from domestic producers, which means that rather than being a one-off shock to the inflation rate they might have a persistent effect on inflation.<\/p>\n

Related Article\"Musk<\/a><\/p>\n

A prolonging of the war in the Middle East would add fuel to the trade war\u2019s embers and force the Fed\u2019s hand.<\/p>\n

It has already seen the bond yields that actually dictate what businesses and consumers pay for finance rise.<\/p>\n

Before the attacks on Iran were launched, the yields on two-year bonds were below 3.4 per cent. Now they\u2019re around 3.9 per cent. The yields on 10-year bonds were just above 3.9 per cent. Now they\u2019re hovering around 4.4 per cent.<\/p>\n

If the inflation rate continues to rise, so should those yields, with dampening effects on economic growth.<\/p>\n

The reliance on investment in AI, and the sharemarket\u2019s dependence on AI (and equity investors\u2019 apparent dismissal of the war\u2019s relevance to their interests) to maintain its gains, are other points of potential economic vulnerability.<\/p>\n

A prolonging of the war in the Middle East would add fuel to the trade war\u2019s embers and force the Fed\u2019s hand.<\/p>\n

The rate at which AI investment has scaled up \u2013 the hyperscalers alone spent less than $US400 billion on AI last year, but could reach $US1 trillion between them next year \u2013 is stretching the capacity of the markets to supply the equity and debt required.<\/p>\n

Any stumble in delivering on the markets\u2019 optimistic expectations of the eventual commercial returns from the sector could cause a convulsive shakeout.<\/p>\n

Higher inflation and interest rates would also be unhelpful, adding to the cost of the AI data centres while also increasing the discount rates applied to prospective future cash flows and earnings and therefore sharemarket valuations of the companies.<\/p>\n

Related Article\"Jerome<\/a><\/p>\n

Any sharemarket wobbles would also flow through to consumer spending, which drives about two-thirds of US economic growth, while an increase in interest rates would add to the cost of servicing the $US39 trillion-plus of US government debt and increase existing concerns about the sustainability of the government\u2019s finances.<\/p>\n

Thus, the outlook for the US economy (and the Republicans\u2019 prospects at this year\u2019s midterm elections) rests on a continuation of the boom in AI investment, a sharemarket that keeps adding to the wealth of the higher-income households and a relatively quick end to the war in Iran before energy prices-induced inflation becomes entrenched.<\/p>\n

All three of those foundations for the modest growth the US is generating have some potential vulnerabilities, although how and when the war and its threat to inflation and the sharemarket ends is, obviously, within Donald Trump\u2019s control…if he can bring himself to exercise it without the complete surrender that Iran appears unwilling to provide.<\/p>\n

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n

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\"StephenStephen Bartholomeusz<\/a> is one of Australia\u2019s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"May 4, 2026 \u2014 9:58am Save You have reached your maximum number of saved items. Remove items from…\n","protected":false},"author":2,"featured_media":648300,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-649630","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/649630","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=649630"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/649630\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/648300"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=649630"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=649630"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=649630"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}