by Bill O’Grady, Kaisa Stucke, and Thomas Wash
[Posted: 9:30 AM EST] Equity markets have remained relatively calm after the Fed minutes reaffirmed the outlook of most investors. In the minutes, the Federal Reserve voted unanimously to maintain current rates due to the PCE remaining below its 2% target as well as “heightened uncertainty” about changes in fiscal and government policy. However, one committee member suggested that even if economic and inflation data were consistent with expectations, the committee should consider raising rates “relatively soon” in order to maintain flexibility. The Fed minutes reaffirmed market sentiment that a March rate hike remains relatively unlikely. Nevertheless, they do suggest that the Fed may become more hawkish in the upcoming months.
In other news, Treasury Secretary Steve Mnuchin stated that he should have a “very significant” tax plan by the August recess. It is believed that his tax plan will include tax cuts to middle income households and businesses alike. The Trump administration believes the increased growth in the economy should offset any potential losses in tax revenue, and there has also been talk of a controversial border adjustment tax. During an interview on CNBC’s “Squawk Box,” Mnuchin stated that the Trump administration’s aim is to get the U.S. growing at a rate of 3% or better. In addition to tax reform, Mnuchin believes that rolling back some of the policies laid out by the Obama administration would also support growth.
Although we believe that Mnuchin will meet his August deadline, we are not sure if it will garner support in Congress. Paul Ryan has struggled as of late to persuade Republicans to support the border adjustment proposal, which the president has deemed too complicated. There has also been backlash from businesses such as Walmart, who believe that the plan will hurt them in the long run, and farmers who believe the tax will lead to a trade war. We will continue to monitor these developments.