US: Little has changed since late-2017 – Westpac

Analysts at Westpac suggest that in the US, little has changed since late-2017 and debate on the effectiveness of the now-passed tax bill continues to rage on.

Key Quotes

“On the one hand are comments such as those of Atlanta Fed President Bostic: “among businesses surveyed after the House of Representatives' version of the tax overhaul had been approved, two-thirds or more of larger firms said the changes would not prompt them to expand investment or hiring”. But on the other are individual company decisions such as that made by Walmart to increase the hourly wage paid to their lowest-paid workers from February, from $9-10 to $11.”

“Suffice to say that the US economy is very large and the tax package very complex; ergo, the net aggregate effect will take considerable time to digest. Regarding the FOMC, the positive tone of financial markets generally in early 2018 has rubbed off on market expectations for the next Fed hike.”

“The market’s view on the timing is that it is now most likely to come in March, and definitely by June (on economic fundamentals, June remains our current expectation). Interestingly, the market’s view on the total number of hikes in 2018 is still that there will only be two (also our view), although the probability of a third has firmed. However, it is evident that financial conditions are becoming the swing variable for policy, both in terms of the timing of each decision and whether the cumulative number of hikes will be two (as we and the market expect), three (the FOMC’s central forecast) or more. We will continue to closely assess the strength of the US dollar and equity markets as well as the level of the benchmark 10-year Treasury yield.”