We are beginning to have supply side effects entering into the US economy from the tax cuts. The reduction in personal income taxes meant more people are coming forward to work and that is that increasing the participation in the labour force. The cut in corporate tax rates means you have a higher level of investment and that increases supply too. Both of those things put together increases growth and decreases unemployment.
Conclusion
Because the Fed didn't change forward guidance meant that the bond market in the US which has been rising in yield ahead of the Fed meeting initially stabilised and drifted down a bit. As far as the market was concerned, the surprise was for lower long-term interest rates not higher long-term interest rates.
Advertisement
I wrote a piece a couple weeks ago about where bond yields may go at the end of the cycle. I think that that the new confidence in the US bond market about the low level of future inflation the low level of future interest rates is a little bit misplaced. For the moment, the fact that the Fed has not changed its future expectations interest rates means the bond market is more confident.
This article ws first published by Morgans.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.
This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.
Discuss in our Forums
See what other readers are saying about this article!
Click here to read & post comments.
6 posts so far.