Tax reforms finally announced
In line with Trump’s pre-election promises – and with all the pomp and circumstance we’ve come to expect from the new administration – the White House unveiled its plans to reform the US tax system this week.
Heralding ‘the biggest tax cuts in history’, the document itself was something of a damp squib – just a single A4 page summarising the main points of the reform agenda which would at a stroke simplify the US tax system, slash business taxes and consign inheritance taxes to history.
An upturn for the economy?
After a period of sluggish performance, the US economy may be set for an unexpected upturn. The incoming Republican administration seems determined to throw all its resources into boosting the economy which, together with the much-touted trade restrictions shoring up the price of imports, is almost certain to fuel inflation above the average 2.2% of Obama’s second term.
While under Barack Obama, labour regulation and environmental legislation expanded greatly – witness the scope of Obamacare, for instance – its subsequent contraction under Trump may well encourage businesses to start investing again.
Emerging from the doldrums
The pace of US growth recovered sharply in the third quarter, peaking at its highest rate in two years and lending credence to forecasts that the country is on track for greater economic stability as 2016 draws to a close.
The economy expanded at a 2.9 percent annualised rate in the third quarter, up from 1.4 percent in the second quarter, which topped predictions of a more modest rate of 2.6 percent and reflected a spike in exports as well as an increase in federal spending, according to the US Commerce Department.
That said, consumption growth – another key indicator of the health of the economy – dropped back over the same period to just 2.1 percent, down from more than double that figure in the previous quarter, and falling a long way short of the expected 2.6 percent benchmark.
Rates on hold
The announcement by the Federal Open Market Committee (FOMC) to hold US interest rates steady in July came as no surprise to market analysts who had felt that the threat of economic uncertainty and the imminent presidential election would prevent the Federal Reserve from making any hasty decisions to hike the rate in the short term.
The black stuff
Crude oil prices have fallen to their lowest levels since the global financial crisis, with further losses likely in the coming weeks. On 4 December, the Organization for Petroleum Exporting Countries (Opec) voted to continue its policy of acquiring market share rather than supporting prices, which resulted in US crude oil values dipping to under $40 a barrel. Values are now at their lowest levels since December 2008, when crude-oil futures price fell to around $34.
Opec’s decision to maintain its market share strategy is only part of the story, with the cartel’s organisational disarray stimulating renewed selling and causing widespread anxiety in the sector.
All systems go
With businesses poised for news of an interest rate rise this month, the world’s economy seems to be pulling in two directions. A gentle nudge from 0.25% to 0.5% may not seem like a major move for the Federal Reserve but it’s a move that would have sparked anxiety a year or so ago and will mark the transition towards a more optimistic outlook in the US.