Business World

Friday 6 December 2019

US tax cuts 'won't alter Fed rate-hike strategy'

Donald Trump. Photo: Reuters
Donald Trump. Photo: Reuters

Rich Miller

The Federal Reserve won't need to pick up the pace of its planned interest-rate increases in response to the recently passed tax overhaul package, White House chief economist Kevin Hassett has said.

The administration's computer modelling of the economic effects of the tax plan result in interest rates that "aren't inconsistent with the Fed's current guidance", he said during Saturday's session at the annual meeting of the American Economic Association in Philadelphia.

In December, US Central Bankers pencilled in three interest-rate increases for 2018, the same pace they foresaw in September, even as they raised their forecast of 2018 economic growth to 2.5pc from 2.1pc in anticipation of the $1.5tn (€1.24tn) cut in business and household taxes, based on their median projections. US President Donald Trump signed the tax bill into law on December 22.

"If you have a supply-side stimulus then it doesn't put upward pressure on prices'' and so doesn't require a change in the Fed's policy path, Mr Hassett said.

While there's some boost to demand from the plan, primarily through household tax breaks, the lower corporate tax rate should pave the way for higher potential growth by encouraging companies to spend more on productivity-enhancing plant and equipment, Mr Hassett said.

Mr Hassett also pointed to the tepid level of inflation, which is below the Fed's 2pc target, suggesting the tax cuts would not lead to a faster pace of central bank rate increases. (Bloomberg)

Irish Independent

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