White House National Economic Council Director Kevin Hassett told the Economic Club of New York on Monday that the expansion has momentum, but it isn't immune to external shocks. Citing gains in productivity and wages, he said growth "should be cruising around 4% instead of 3%," and characterized that as his base case assuming no interruptions from abroad or other outside developments. He also noted that factors beyond the U.S.'s control could hinder the administration's pursuit of at least a 3% growth pace.
Inside the administration, Treasury Secretary Scott Bessent and others have targeted a sustained 3% GDP pace during President Donald Trump's current term. Many private forecasters see something closer to 2%.
Recent GDP prints have been propped up by a wave of investment tied to artificial intelligence. Economists also flag a slowing labor-force growth rate as a key headwind. Housing remains under pressure, even as consumer spending has held up despite elevated inflation.
On the budget outlook, Hassett said unspecified complications could stand in the way of reaching a deficit equal to 3% of GDP, a goal Bessent has set. When pressed on whether the deficit could hit 3% before Trump's term concludes, he said it would hinge on whether "force majeure" type developments interfere with that outcome. In business settings, force majeure refers to a supplier being unable to honor a contract because of extraordinary circumstances beyond its control.
Rising interest costs on the federal debt, pushed higher by Treasury yields, have been a recent driver of the budget gap. On the jump in yields, Hassett argued it partly reflects a more attractive investing backdrop. If projects such as data centers still pencil out at higher borrowing costs, companies keep building and borrowing, which can nudge rates up. "The 30-year Treasury market is telling you that the real return on capital is higher than it used to be," he said.
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Hassett also put the debt load in context following a gauge of total public debt surpassing $40 trillion in August. He pointed to a narrower lens, saying much of the obligation is held within the government. He estimated what he termed "external" debt at around $15 trillion, without detailing the methodology.
For everyday investors, the setup is a tug-of-war: productivity-fueled strength on one side, and slower labor-force growth, a soft housing market, and higher rates on the other.
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