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Barron's: Soaring Inflation Is Trump's Tax Reform Major Risk

Barron's: Soaring Inflation Is Trump's Tax Reform Major Risk
(DreamsTime)

Monday, 04 December 2017 09:40 AM

A major risk for the market is the potential rise in U.S. inflation, warns Mark Haefele, Swiss bank UBS’ global chief investment officer.

“That concern, which could push the Federal Reserve to tighten more aggressively, is shared by Deutsche Bank’s strategists, along with the impact of the European Central Bank’s tapering of its massive bond purchases,” Barron’s reported.

Cutting the corporate tax rate to 20% would result in earnings for Standard & Poor’s 500 companies some $10 per share higher, to $151 instead of $141, in 2018, according to UBS Wealth Management estimates.

Deutsche has joined the small but growing list of major banks that think the Fed could raise its interest-rate target four times in 2018, in addition to the quarter-point hike that seems to be a lock at the Dec. 12-13 meeting of the Federal Open Market Committee.

“One certain impact of tax reform will be a huge week for municipal-bond sales, with over $17 billion on tap, according to the Bond Buyer, as states and localities rush to issue bonds that would be curbed under the proposed legislation. With the probability of cheaper prices and higher yields, which are needed to clear the market, maybe you should consider stuffing munis in your family’s holiday stockings,” Barron’s reported.

The S&P 500 has risen about 18 percent this year on strong corporate earnings and solid economic growth and also on hopes that Trump’s agenda of corporate tax cuts and looser regulations could come through, Reuters reported.

For its part, the Trump tax-cut reductions will boost economic growth by around 0.3 percentage point for next year and 2019, according to estimates by Goldman Sachs Group Inc.

With the Senate passing legislation on Saturday that matched the House of Representatives in including up to $10,000 in state and local property-tax deductions, that eliminated "the most important political difference between the bills before the conference negotiations start," Goldman economists led by Jan Hatzius in New York wrote in a note, Bloomberg reported.

(Newsmax wire services contributed to this report).

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A major risk for the market is the potential rise in U.S. inflation, warns Mark Haefele, Swiss bank UBS’ global chief investment officer.
barrons, inflation, trump, tax, reform
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2017-40-04
Monday, 04 December 2017 09:40 AM
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