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Economists and Fed Agree: Tax Plan Gives Modest Boost to Growth

Economists and Fed Agree: Tax Plan Gives Modest Boost to Growth

(Bloomberg) -- Private-sector economists and Federal Reserve policy makers aligned this week over how the tax plan being finalized in Congress will boost the U.S. economy: temporarily, and not by much.

Economists increased their growth forecasts for this year and next by 0.1 percentage point in a Bloomberg survey published Thursday, compared to a similar survey last month. While this may seem minuscule, many had already incorporated in their forecasts changes to the tax code, which have been high on Republicans’ priority list.

Economists and Fed Agree: Tax Plan Gives Modest Boost to Growth

All economists surveyed in a separate November poll said that any assumed impact from tax-code changes would be a positive one on their 2018 growth forecast. The median forecast boost was a 0.28 percentage-point increase. Economists have increased their growth estimates for next year to 2.5 percent, from 2.3 percent at the start of this year.

The private-sector estimates are in line with the Federal Reserve’s. Central bankers on Wednesday boosted growth forecasts for 2018, and Chair Janet Yellen said the tax plan played into the stronger outlook.

Growth Outlook201720182019Long-run
Private-sector economists2.3%2.5%2.2%2% *
Federal Reserve2.5%2.5%2.1%1.8%

*This forecast is from a survey conducted in October. Other private-sector forecasts are from a December survey.

But both the economists’ and the Fed’s forecasts are a long ways away from the 6 percent growth that President Donald Trump earlier this month told cabinet members was possible. The administration in May forecast 2018 growth of 2.5 percent and said long-run growth would reach 3 percent, compared to the Obama administration’s forecast of 2.2 percent.

In an October survey by Bloomberg, 94 percent of economists said they don’t expect Trump administration policies to lift growth to a sustainable rate of 3 percent. At that point, their median estimate for the long-term growth rate of the economy was 2 percent. The Joint Committee on Taxation, Congress’s nonpartisan scorekeeper, said last month that fiscal stimulus unleashed by tax cuts will boost GDP by about 0.8 percent over the next 10 years.

To contact the reporter on this story: Catarina Saraiva in Washington at asaraiva5@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Scott Lanman, Randall Woods

©2017 Bloomberg L.P.