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President-elect Donald Trump over the weekend 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 defense.
“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,” Trump said in a release announcing the move.
The move may satisfy those in the Republican Party who are concerned about the deficit, but some analysts say 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 at the research firm FBR & Co.
Isaac Boltansky, an analyst at Compass Point, agreed that Mulvaney could face off with others in the Trump administration over deficit-funded stimulus.
“Rep. Mulvaney is a staunch deficit hawk, which suggests that he will be a strong advocate for fiscal prudence,” Boltansky wrote in a note to clients. “This could conceivably set him at odds with others within the Trump Administration.”
Trump has long promised a massive infrastructure overhaul; his transition website says the administration plans to invest $550 billion to make America’s “roads, bridges, airports, transit systems and ports” the “envy of the world.”
This proposal has also been cited by Trump and economists as a major part of the effort to improve US economic growth. While Trump has said some of the money will come from private companies, an investment of this size would most likely require significant spending from the federal government.
To do that, the government must increase revenue, cut spending elsewhere, or 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 revenue difficult. He has also 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 enabled by 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,” Torsten Sløk, the chief international economist at Deutsche Bank, said in a note to clients after the announcement.
This does not mean stimulus won’t happen; ultimately, Trump is still in charge and can push Mulvaney to include the spending in the budget or make the math work to get an infrastructure plan going. Mulvaney may be able to provide some pushback, however, Mills said.
“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,” Mills concluded. “This leads us to believe that Mulvaney could push back against the significant stimulus spending.”