U.S. economy bouncing back, tax reform may be icing on the cake

he U.S. economy continues to make strides towards what the Trump administration is aiming for: sustained economic growth that’s stronger than what transpired under the Obama administration.

The U.S. economy grew by 3% in the third quarter, according to the first read on the data by the Commerce Department, defying expectations that growth would take a hit during the quarter after major hurricanes Harvey and Irma hit the U.S., crippling economic activity in certain regions.

While the pessimism about hurricanes didn’t play out during the quarter, enthusiasm on tax reform may have, according to Kevin Hassett, Chair of the Council of Economic Advisers. He attributed the strong data to optimism among business leaders on overall tax reform. Hassett commented on GDP during a press briefing to discuss the new report, “The Growth Effects of Corporate Tax Reform: Implications for Wages” released today.

The report suggests reducing “the corporate income tax rate from 35 percent to 20 percent simultaneously with the introduction of immediate full expensing of capital investment would generate an increase in GDP of between 3 and 5 percent in the long run. Studying the impact of this growth on the typical household, we again find that the average household would, conservatively, realize an increase in wage and salary income of $4,000” noted in the conclusion of the report.

While tax reform remains fluid, the team at Credit Suisse is taking the better-than-expected 3Q GDP report with a grain of salt noting “much of the strength is being driven by volatile categories” while estimating that “recent hurricanes had an overall negative impact on Q3 growth, but we expect to see a boost from rebuilding efforts in coming quarters.”

As for the Federal Reserve it is sticking to its forecasts. In its latest, quarterly economic projections, the Fed raised its GDP outlook for 2017 from 2.1% to 2.2%. The FOMC will meet next Wednesday and policymakers are expected to leave rates unchanged, setting the stage for a December rate hike.

This may be one of Chair Janet Yellen’s final meetings. President Trump is leaning towards nominating Federal Reserve Governor Jerome Powell to lead the Fed, according to FOX Business. Powell’s lead position was first reported by Bloomberg.