President-elect Donald Trump selected Rep. Mick Mulvaney to head the Office of Management and Budget, which oversees the creation of the federal budget for the president.
Mulvaney is a three-term Congressman who has been a staunch advocate for balanced budgets and less deficit spending, even for defence.
“With Mick at the head of OMB, my administration is going to make smart choices about America’s budget, bring new accountability to our federal government, and renew the American taxpayer’s trust in how their money is spent,” said Trump in a release announcing the move.
The move may satisfy those in the Republican party that are concerned about the deficit, but according to analysts, it also makes large-scale fiscal stimulus — one of the biggest campaign promises from Trump — less likely.
“We believe the nomination of Mulvaney could dampen some hope of a large-scale fiscal stimulus during the early part of the Trump Administration,” said Edward Mills, an analyst as research for FBR & Co.
Trump has long promised a massive infrastructure overhaul, his transition website says the administration will invest $550 billion to make America’s “roads, bridges, airports, transit systems and ports will be the envy of the world.”
This proposal has also been cited as a major part of the effort to improve US economic growth by Trump and economists. While Trump has said some of the money will come from private companies, in order to fund an investment of this size, there would most likely need to be significant spending from the federal government.
In order to do that one of three things has to happen: the government has to raise revenues, the government has to cut spending elsewhere, or the government has to take out debt to finance the projects.
As for the first two, Trump has promised large tax cuts for both individuals and corporations, which would make increasing revenues difficult. Additionally, he has said he wants to invest heavily in the military, so cutting spending elsewhere may be difficult.
Debt always seemed to make sense given cheaper debt servicing costs due to low interest rates, but now with Mulvaney at the helm of the OMB, this option may not be as likely.
“This significantly lowers the probability of big unfinanced tax cuts and big unfinanced infrastructure spending,” said Torsten Sløk, chief international economist at Deutsche Bank, in a note to clients following the announcement.
This does not mean stimulus is not going to happen, ultimately Trump is still in charge and can push Mulvaney to include the spending in the budget or make the maths work to get an infrastructure plan going. Mulvaney may be able to provide some pushback, however, said Mills.
“President-elect Trump’s statement announcing the nomination highlighted Rep. Mulvaney’s conviction to address the federal debt and pledged ‘accountability’ in federal spending in his Administration,” concluded Mills. “This leads us to believe that Mulvaney could push back against the significant stimulus spending.”