Top 9 Economic Predictions for the Next 10 Years

Look beyond the day-to-day crises, the ups and downs of the stock market, and news headlines. Here are the top nine predictions that most affect both the United States and your personal economy over the next decade. 

The U.S. Economy Will Boom Then Bust

Auto manufacturing is an important driver of GDP. (Photo: Bill Pugliano/Getty Images)

The Federal Reserve predicts economic growth, as measured by gross domestic product, will be between 2.0 percent and 2.4 percent each year until 2018. That's within the ideal range of 2-3 percent. 

But many people dropped out of the labor force during the recession, and they haven't returned. Donald Trump promised to boost growth to 4 percent.  His supporters felt they hadn't regained the good jobs they lost during the recession. The Fed hasn't incorporated his policies into its forecast yet. 

How It Affects You

A 4 percent growth rate will set off a dangerous boom and bust cycle. If growth does hit that level, it could create a recession by 2018 or later. You may need the five steps that protect you from the next economic crisis. More

Dollar Decline Will Resume

Dollar will decline
The dollar will resume its loss of value. Photo: Image Source/Getty Images

After rising 25 percent in 2014 and 2015, the dollar's value will resume its long and gradual decline in value. Forex traders were betting on a strong dollar while the Federal Reserve announced it would raise interest rates. Now that it's happened, traders will realize rates are only rising slowly. They will find another currency to bet on.

Foreign investors will also become more concerned about the U.S. debt. They'll fear that United States wants the dollar to decline so the relative value of its national debt is less. They are diversifying their portfolios with more non-dollar denominated assets, such as the euro

How It Affects You

A weak dollar will increase import prices. That contributes to inflation. It also reduces export prices, spurring economic growth. This will be a gradual dollar decline. So, ignore all those predictions of a dollar collapse. More

When China Sneezes, America Catches a Cold

China's influence on the dollar, as represented by flags
China influences the dollar by buying U.S. Treasuries. Photo: grahamheywood/Getty Images

China became the world's largest economy in 2014, overtaking both the U.S. (No. 2) and the EU (No. 1). China's economic growth is slowing from double-digits to around 7 percent annually. But it's now so large that it will continue to affect the U.S. economy much more than it ever did in the past.

One reason is the U.S. debt to China is still more than its debt to any other country. The U.S. trade deficit to China is shrinking, but still large. 

How It Affects You 

Any changes China makes as part of its economic reform will affect the U.S. dollar's value. China has maintained a fixed peg to the dollar for its currency, the yuan. It is loosening this peg in its bid to allow the yuan to become a global currency. It is also modernizing China's stock markets. These efforts will feel like a catastrophe to the U.S. economy, simply because the intertwined impacts are unprecedented.  More

The Federal Debt Grows

will the debt ever be paid off
The U.S. debt gets larger and larger each year. Illustration: Turnbull/Getty Images

The  U.S. debt exceeded $20 trillion in 2017. It had remained stable after sequestration kicked in. That required a mandatory 10 percent federal budget cut through 2021. But that could be repealed under a Trump presidency.

Trump promised to reduce the debt. But his policies will increase it by $5.3 trillion.

How It Affects You

Disagreements over how to reduce the debt means a debt crisis every time the debt ceiling needs to be raised. Long-term, balancing the budget means spending cuts, since Trump has promised to cut taxes. That means a cut in the largest discretionary budget item, military spending. Social Security pays for itself, and Medicare partially does, at least for now.

As Washington wrestles with the best way to go about this, it creates uncertainty about tax rates, benefits and federal programs. Businesses react to this uncertainty by hoarding cash, hiring temporary instead of full-time workers, and delaying major investments.

Don't expect a real recovery until the debt-to-GDP ratio returns to a sustainable level. That's the 77 percent benchmark level recommended by the International Monetary Fund. The U.S. ratio is 102 percent.

Federal spending is a component of GDP, which measures the output of the entire economy. Elected officials use discretionary fiscal policy to manage the economy. Higher income taxes take money out of consumers' pockets, regardless of where the tax is imposed. Business taxes are passed on through higher prices, or through layoffs and reduced investment for companies that can't raise prices.

Supply-side economics predicts that lowering business taxes will free up funds to hire more workers. But it doesn't work when the maximum tax rate is below 50 percent, according to the Laffer Curve. Whether it's done through tax hikes, spending cuts, or both, austerity measures mean slower economic growth More

The United States Is Involved in Fewer Ground Wars

Successful military operations require fewer ground troops. (Photo:Chris Hondros/Getty Images)

The $19 trillion debt and sequestration means that the United States really can't afford to wage large ground wars anymore. 

The FY 2012 budget reached an all-time high of $804.8 billion to pay for the wars in Iraq and Afghanistan. That the cost of total military spending, including Homeland Security, Overseas Contingency Funds, and the Veterans Administration. It's more than either Social Security or Medicare. It helped create a $1.087 trillion deficit.

In 2011, the special ops raise eliminated Osama bin Laden. That showed that low-cost special ops were more cost-effective than the war in Afghanistan to defeat America's enemies.

Defense spending was projected to shrink to $773.5 billion by FY 2016, which will help the budget deficit drop to $441 billion that year. (Source: FY 2017 Federal Budget)

How It Affects You

You may feel more insecure as terrorism grows and it seems like America is doing little about it. Other countries will be forced to step up to the plate to keep the world safe. It will seem like U.S. global power is declining.  More

Inflation Is Controlled

FOMC members
Chairman of Federal Reserve Board Janet Yellen (L) and Federal Reserve Governor Daniel Tarullo (R) during a meeting February 18, 2014 in Washington, DC. Photo by Alex Wong/Getty Images

When oil prices return to a normal range, it will raise fears about hyperinflation. That won't happen. The Federal Reserve is vigilant about reversing quantitative easing and raising the Fed Funds rate when needed. 

The most important role of the Fed is managing public expectations of inflation. Once the public expects inflation, it becomes a self-fulfilling prophecy. The Fed can maintain confidence in the economy by demonstrating moderation, resulting in less extreme changes in public economic behavior. The Fed knows this is how former Fed Chair Paul Volcker ended the stagflation of the 1970s. By keeping interest rates high, he reassured the public it was committed to preventing inflation.

How It Affects You

Core inflation will remain at or under 2 percent. Food prices may rise temporarily since they follow volatile oil and gas prices. But the cost of living will remain about where it is today.

You don't have to worry as much as you did in the past about inflation eating away at your retirement savings. Without the threat of inflation, it's also unlikely gold prices will rise above $1,500 an ounce More

Oil and Gas Prices Will Rebound

Gas prices are mostly affected by oil prices
Gas prices are mostly affected by oil prices. Photo: Andresr/Getty Images

The U.S. Energy Information Administration provides an outlook from 2017-2040. It forecasts that oil prices will average $52/barrel in 2017 and $54/barrel in 2018. It warned that commodities traders believe prices would range between $40/b to $65/b by January 2018. 

Oil prices have been hammered by a strong dollar. That's because oil contracts are priced in dollars. Oil companies laid off workers, some defaulted, while others were bought up. High yield bonds funds did poorly as a result. 

The EIA's Annual Energy Outlook predicts that oil prices by 2030, oil prices will be $95 a barrel. After that, U.S. shale oil production will level off. This combined with rising global will send oil prices to around $117 a barrel by 2050.

How It Affects You

Higher oil prices mean higher gas prices. In 2008, when oil prices spiked to $145 a barrel, gas prices rose to $4 a gallon. You can use oil prices to predict tomorrow's gas prices today.

High gas prices drive up the cost of food, which is largely dependent on the cost of transportation.

New technologies are improving energy efficiency. Although gas will cost more, you'll need less of it.  More

Housing Will Continue to Expand

Higher prices mean homebuilders are back in business. (Photo: Justin Sullivan/Getty Images)

States have finally worked through the shadow inventory of homes headed for the foreclosure pipeline. That freed up the housing market to grow robustly. The only hiccup to this rebound could be in 2018, as adjustable rate mortgages rise in cost. That's why the Fed is raising interest rates slowly. It knows that, as mortgage rates rise, housing prices will drop to offset the higher cost to homebuyers. 

A majority of Americans believe the real estate market will crash in the next two years. They see housing prices rising, and the Fed raising rates. To them, it looks like an asset bubble that will be followed by a collapse.

But there are nine differences between the 2017 housing market and the 2007 market. For example, only 5 percent of mortgages were subprime. In 2005, subprime made up 20 percent of all mortgages. These differences make a housing market collapse less likely.


Health Care Costs Escalate if Trumpcare Replaces Obamacare

emergency room
Emergency room doctors become primary care physicians under Trumpcare. Photo: Getty Images

Trump has promised to repeal and replace Obamacare. Trumpcare keeps young adults on their parents' plans, and insures those with pre-existing conditions.

Trump's plan removes the mandate requiring everyone to buy insurance. It requires those with chronic conditions to go into high-risk pools, and pay more. It eliminates the ACA subsidies for middle-income families. It turns Medicaid subsidies into a fixed amount of block grants to the states. They might not use it to subsidize health care for low-income families.

How It Affects You

Health care will immediately become more expensive for those not on company insurance plans. 

Low-income families without insurance would return to using the hospital emergency room as their primary care physicians. That will make health care more expensive for everyone.

As health care costs rise, so will the costs of Medicare and Medicaid. That will limit how much can be spent on other government programs. It will also increase the debt. More