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Another US tax hike

| Posted by: Paul Donovan | Tags: Paul Donovan

  • A 25% tax on US consumers of goods partially made in China is being contemplated (not the original 10%). A 10% tax is easier to evade than a 25% tax, so the rise would bite more. The tax is unlikely to hit US consumers before the mid-term election (there is a lag in implementing). The hit to the US economy of the tax hike may be greater than the hit to any other economy (including China).
  • The Fed did not mention the tax increases in its policy statement although they must be a consideration. Instead, the signal was as expected – a rate hike is coming at the next meeting.
  • The Bank of England is next, with the market is confidently expecting a rate increase. Wage growth, the overall strength of the labor market, and recent credit growth argue for a tightening.
  • There will now be a short service interruption in the morning call, for a couple of weeks. The lawyers are insisting I take a holiday. In vain I have pointed out that economists do not take holidays, and a life without economics is not worth contemplating. Normal service will resume as soon as I am allowed.