Fed doesn’t believe in huge effects of tax reform
The last minutes showed that the FOMC members expect that the Republican tax plan will have only a modest impact on the economy. They revised up their forecast for real GDP growth beyond 2017, as the changes in the tax code would likely provide a modest boost to consumer and capital spending.
Beyond 2017, the forecast for real GDP growth was revised up modestly, reflecting the staff's updated assumption that the reduction in federal income taxes expected to begin next year would be larger than assumed in the previous projection. The staff projected that real GDP would increase at a modestly faster pace than potential output through 2019.
However, the Fed officials stated that the magnitude of the effects was uncertain, as companies could use the increase in cash flow for debt reduction or stock buybacks. Only time will tell the exact effects – we expect that the tax reform will benefit the U.S. economy, which is not good news for the gold prices. The near-term benefits are rather priced in the market, but investors haven’t taken all longer-term benefits into account yet. Remember. As the reform gives companies incentives to build plants in the United States rather than overseas, we are likely to see an increase in capital spending.