Mnuchin Discounts US Recession, Says Stock Retreat ‘Makes Sense’

ormer Treasury Secretary Steven Mnuchin discounted risks of a US recession, and played down the current selloff in equities, advising investors against overreacting to President Donald Trump’s aggressive trade tactics.

“We came in with the market being fully priced, so I think a 5% to 10% correction on the S&P or the Nasdaq actually makes sense,” Mnuchin said in an interview with Bloomberg’s Saleha Mohsin Thursday on "Balance of Power."

He spoke as the S&P 500 Index added to its recent selloff, with the gauge heading for its lowest close since September. Thursday’s drop followed threats by Trump to impose a 200% tariff on European alcoholic beverages, in the latest escalation in a growing transatlantic trade war.

“The market’s been really fueled by massive amounts of tech spending, particularly around AI — so some of this is a natural correction in the market,” said Mnuchin, who is now at Liberty Strategic Capital, a firm he founded after leaving office. “And some of this is the market worrying about tariffs and the impact” they will have, he said.

Mnuchin, who served as Treasury chief throughout Trump’s first term, advised investors not to “overreact.”

Deficit Priority

“I don’t see us at all going into a recession,” he said. “We could have a little bit of a slowdown in the economy as we pull back on government spending, but I don’t think investors should be concerned about a recession.”

He also said that the top concern now is the outsized US fiscal deficit, and called on Republicans working on extending Trump’s 2017 tax cuts to attach offsets that reduce the impact on borrowing.

“Whatever tax cuts are passed, at least some of them have to be paid for,” Mnuchin said. “The deficit is our No. 1 problem today.”

The tax legislation itself is simpler to deal with this time, and it’s “critically important” for the reductions to get extended, Mnuchin said, while also highlighting some differences from 2017.

The “pay-fors are much more significant” now, he said. “We also have a much bigger budget deficit.

We had much more fiscal room in 2017. And we had lower interest rates, so the interest on the debt wasn’t as big of a problem. So you had all those things up, and yes, it’s more difficult today.”

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