BERNANKE: Trump's tax cuts are like 'Wile E. Coyote' and the economy's boost will fall off the cliff in 2020

  • Ben Bernanke, the former Federal Reserve chairman, said Thursday that the Trump administration’s tax cuts would initially boost the economy but reach the edge of the cliff in 2020.
  • “In 2020, Wile E. Coyote is going to go off the cliff, and he’s going to look down, and that [stimulus] will essentially be withdrawn at that point,” Bernanke said, referring to the “Looney Tunes” character.
  • Bernanke, a distinguished fellow in residence at the Brookings Institution, was the Fed chair from 2006 to 2014.

The former Federal Reserve Chairman Ben Bernanke said Thursday that the Trump administration’s fiscal stimulus risked damaging the US economy by 2020.

That’s because the $US1.5 trillion tax cut and increases to government spending come at “the very wrong moment,” when unemployment is at historic lows and the economy is already being supported by low interest rates, Bernanke said at an event hosted by the American Enterprise Institute.

The Congressional Budget Office expects tax cuts to boost the US economy’s output, but at a decreasing rate through 2020. Also, the cuts are likely to come at a huge cost to the federal government’s revenue – the CBO estimated that the US budget deficit would balloon to $US804 billion in fiscal 2018.

According to Bernanke, the federal government would be less equipped to handle the next economic downturn when stimulus is needed the most.

“In the current law, it’s going to hit the economy in a big way this year and next year, Bernanke said.

“And then in 2020, Wile E. Coyote is going to go off the cliff, and he’s going to look down, and that [stimulus] will essentially be withdrawn at that point,” he said, referring to the “Looney Tunes” cartoon character.

Bernanke, a distinguished fellow in residence at the Brookings Institution who was the Fed chairman from 2006 to 2014, added that fiscal stimulus would make the central bank’s job more difficult because it’s coming at a time when the economy is “at full employment.”

“The Fed has got a much more difficult job to try to maintain non-inflationary full employment over the next three or four years, given this strong stimulus at this unusual time followed by some incidental withdrawal of stimulus in a couple of years from now,” Bernanke said.

Congress designed the personal tax cuts to expire in 2026, partly because they would add to the deficit outside a 10-year window in violation of a budget-reconciliation provision.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.