“There are a lot of ways to have the economy grow,” Mnuchin said in an interview aboard a train to Philadelphia on Thursday, where he toured the US Mint. “You can have wage inflation and not necessarily have inflation concerns in general.”
He also said he isn’t concerned about foreign investment in new US debt, which analysts expect will exceed $1tn this year.
An unexpectedly large jump in average hourly earnings in January set off a stock market swoon as investors worried about higher inflation and interest rates. In addition, long-term Treasury yields have surged in recent weeks, in part driven by concerns that widening budget deficits under the Trump administration will fuel inflation.
As Trump’s chief economic cheerleader, Mnuchin has consistently deflected any suggestion that the president’s policies could have a downside. He sidestepped the idea that tax cuts and increased federal spending Trump has signed into law amount to an economic stimulus.
“Is it very good for the economy? Absolutely,” Mnuchin said of the tax cuts. “One of the reasons why the president won the election is because most middle-class Americans had very little wage growth.”
Jeffrey Gundlach, the chief investment officer at Los Angeles-based DoubleLine Capital, expressed scepticism about the Treasury secretary’s assessment.
“Mnuchin: policies will raise wages w/out inflation. Yeah, sure,” the billionaire bond manager wrote on Twitter Thursday evening.
Much of the new US debt will be bought by foreign investors. Foreign holdings of US Treasuries stood at $6.3tn as of the end of last year, hovering near a record amount and almost double the level when the recession ended in 2009. China alone holds about a fifth of foreign-held debt, making it the US’s largest creditor.
The director of national intelligence, Dan Coats, told the Senate Intelligence Committee on February 13 that the US debt, now at $20.8tn, is “unsustainable” and “represents a dire threat to our economic and national security.”
“I would urge all of us to recognise the need to address this challenge and to take action as soon as possible before a fiscal crisis occurs that truly undermines our ability to ensure our national security,” Coats said.
But Mnuchin said that foreign investors in US debt don’t worry him.
“I’m not concerned about that for national security risks,” he said, adding that what’s important is that the US can afford to finance its military and intelligence operations.
Mnuchin’s remarks on the tax cuts reflect the administration’s public argument for them. Kevin Hassett, chairman of the White House Council of Economic Advisers, has said that the tax law signed in December will help bolster productivity gains by encouraging companies to invest in efficiency-enhancing equipment, allowing the economy to grow faster without spurring inflation.
The Treasury secretary also suggested that the US is less vulnerable to oil-driven inflation because of rising energy production in the country. “We’re no longer fully dependent on foreign oil,” Mnuchin said. “Energy is always a big concern in terms of inflation, among the geopolitical risks.”
After ebbing in 2017, inflation recently picked up. Consumer prices in January were 2.1% higher than a year earlier, up from 1.6% in June. Wages also are rising.
Average hourly earnings rose 2.9% in January from a year earlier, the fastest pace since the recession ended in June 2009. With unemployment at its lowest level since 2000, companies increasingly must pay more to hire and retain the workers they need. The big question, still unanswered, is whether businesses will raise prices to cover the added labour costs.
