The Economic Future, What Does 2018 Hold? Noel King talks to David Wessel, director of the Hutchins Center at the Brookings Institution, for a look back at 2017's economy, and what it teaches us about what we can expect economically in 2018.
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The Economic Future, What Does 2018 Hold?

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The Economic Future, What Does 2018 Hold?

The Economic Future, What Does 2018 Hold?

The Economic Future, What Does 2018 Hold?

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Noel King talks to David Wessel, director of the Hutchins Center at the Brookings Institution, for a look back at 2017's economy, and what it teaches us about what we can expect economically in 2018.

NOEL KING, HOST:

We're looking back this morning at how the economy did last year, 2017, and what we can expect in the coming year. David Wessel is with us. He's director of the Hutchins Center at Brookings and a contributor to The Wall Street Journal. Hey, David.

DAVID WESSEL: Good morning.

KING: Hey. So we hit the end of the year and the economy looks pretty good, right?

WESSEL: It does. The economy got off to a soft start in 2017, but it's been growing at a reasonably healthy pace lately. The unemployment rate, which was 4.7 percent at the end of last year, is down to 4.1 percent at last count. Last time it was this low, Bill Clinton was president 17 years ago. The U.S. has added a couple million jobs in the past year, all of them in the private sector. Government employment has actually fallen a bit. We're drawing a lot of people from the sidelines of the job market into the economy. Inflation is low. The stock market has risen about 19 percent in the past year. Interest rates are still low, although they're starting to go up a little bit. In short, we're going into 2018 with really impressive momentum.

KING: Momentum sounds good. So what are your predictions for 2018?

WESSEL: Well, the best guess is more of the same, barring some big disruption, like a shooting war with North Korea or a trade war with Mexico or something. The economies of the U.S. and those of our major trading partners are strengthening. The tax cut, the big tax cut plus some expected increases in federal spending for hurricanes and other things are going to give the economy a boost in 2018, although some depends on how businesses and rich folks choose to use their tax savings.

It's incredible, most economists see unemployment falling towards 3.5 percent in 2018, which is remarkable. That should be low enough to at last push up wages. The Fed is on track to raise interest rates from still low levels by maybe three, four times in 2018, but the economy and the markets now seem strong enough to absorb that.

KING: I mean, one thing we're going to hear a lot about in 2018 is 10 years since the housing bubble burst, and the financial crisis and the Great Recession. So how is the housing market looking today?

WESSEL: Well, housing is finally coming back. Sales of existing homes have been strong. Builders are picking up the pace building new homes. Nationally, home prices are up about 6 percent over the past year. They're now above where they were before the housing bust. And thanks to that, only 5 percent of homeowners with mortgages own more than the value of their homes. That's way, way down from a few years ago. Now, there are pockets where things are worse - Las Vegas, Chicago, Miami, Scranton, Pa. The tax bill does curtail some tax breaks for housing, but I don't think that's going to disrupt the near-term trends.

KING: All right. So it's mostly sounding good, but I know that you did want to talk about the things we should be worried about in 2018.

WESSEL: Right. You know, I remember when Alan Greenspan left the Fed. Everybody thought everything was wonderful, and two years later, we're in the worst recession of our lifetimes. Any year, there's about a 20 percent chance of recession. And recessions are almost impossible for economists to predict. So it's worth thinking about what could go wrong. Well, the Fed could be spooked by inflation and lift interest rates more than anticipated, slowing the economy, disrupting financial markets. We could see a big confidence-shattering drop in stock markets. It's been up so long, it's bound to come down. We could see some problems in the banking system that turns out we didn't put enough seat belts and air bags in. Trump's talk on trade could turn from tough talk to disrupting global supply chains. So there are a lot of things that could go wrong, and what's hard about a time like this when everything looks wonderful, it's hard to predict what is the one thing that's going to break the back of the economy. And then there are some really big long-term problems out there.

KING: Which I don't think we have time, unfortunately, to get into. But we will at some point in 2018. David Wessel is the director of the Hutchins Center at Brookings and a contributor to The Wall Street Journal. Thanks so much, David.

WESSEL: You're welcome.

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