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Trump – not the Fed – is the biggest threat to the US economy



Reserve Bank of India, Governor Raghuram Rajan

Karat Paranjep | AFP | Getty Images

Former head of the Central Bank of India, Raguram Rajan, warned that the biggest threat to the US economy would come from President Donald Trump's trade policies.

In an opinion entitled "Is Economic Winter Coming?" published on Project Syndicate's website on Tuesday, Rajan said that the old rules governing macroeconomic cycles seem to be no longer applicable and it remains to be seen what the next recession in the United States can cause

"But if recent history is our guide "The biggest threat comes not from the US Federal Reserve or any economic sector, but rather from the White House," says Rajan, who is currently a professor of finance at the University of Chicago's Boots Headquarters.

He further pointed out that the Trump administration had "redoubled" its trade war with China, just after the Fed embarked on its path of increasing pace last year.

"After the markets began to break up in late 201

8, the Fed gave way. With a comprehensive deal to settle the trade war, there is nowhere to be seen and with an official impeachment investigation against Trump already underway, the Fed is unlikely it will tighten monetary policy soon, "Rajan said.

Meanwhile, a second factor Ryan points to is geopolitics. I risk having the assassination of Saudi Arabia's oil facilities in September. "A jump in the price of oil could drive the global economy toward recession."

Rajan, who has been managing the Reserve Bank of India for three years, from September 2013 to September 2016, said while recessions are unpredictable by nature, the biggest threat is not the rate hike, but the unforeseen actions in areas such as trade and geopolitics.

"If the world had less power, the world economy would be much stronger than it is. Unfortunately, most of today's authoritarian leaders are there because the voters put them there. "

CNBC reached out to the White House, but no comment was available immediately.


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