US: Tax reform and core PCE deflator in focus – BBH

According to analysts at BBH, there are three talking points in the US and first amongst them is the tax reform and may be voted on by the Senate today.  

Key Quotes

“It is close, and there is some talk of last-minute tweaks that could include a discretionary spending cut trigger instead of a corporate tax increase trigger, which seems to be more in keeping with the spirit of the thrust of this tax bill.”  

“Second are the data.  The US reports personal income and consumption figures that will be used to calculate Q4 GDP.  Yesterday, investors learned that Q3 growth rose to 3.3% SAAR from the 3.0% initial estimate.  Consumption was revised lower (to 2.3% from 2.5%), but spending on business equipment rose 10.4% (a three-year high) from the initial estimate of 8.6%.”  

“The US also reports the core PCE deflator, which is what the Fed targets.  The deflator has begun to recover from the slide earlier this year (from nearly 1.9% in January to a little below 1.3% in September.  It is expected to rise to 1.4%.  We suspect there is a greater risk of the surprise coming to the upside rather than the downside.”  

“Third, late yesterday, President Trump nominated Goodfriend to the Fed's board of Governors.  It is widely regarded as a solid choice and one that has been talked about for nearly six months.  Goodfriend is a mainstream macro-economist who is sensitive to the international context.  His past criticism of the Federal Reserve suggests he may be more sympathetic to hiking rates earlier in the cycle that has typically been the case.  He also seems somewhat less interested in activist fiscal policy.  He may be more interested in negative interest rates than Bernanke or Yellen.”