After a lot of anticipation and a busy congressional review process this fall, it looks highly probable that tax reform will be passed into law this week. With the remaining holdout Republican Senators publicly announcing their support, the path is now clear for the largest change in tax policy in three decades.
Expectations for tax reform along with optimism around deregulation has propelled risk markets to all-time highs, but whether or not the new tax policy will spur growth in 2018 and beyond is still unclear. Two counter trend forces will be at play next year with the stimulus from tax reform pushing growth higher, while the Federal Reserve’s (Fed) reduction of monetary stimulus is keeping a lid on growth.
In the end, I think that if the Fed continues to raise interest rates, it will ultimately have a larger impact on the economy than tax reform. I am not willing to call a top in equities, but I am certainly going to be more cautious next year.
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