US tax cuts a bad idea now but will boost growth, help Fed hike rates: Poll

The Fed is likely to raise rates three times in 2018, in line with the central bank’s own projections

The US government was wrong to cut taxes at this stage of the business cycle given the economy is near full employment, but will nonetheless help lift growth this year and give the Federal Reserve more reason to raise rates, a Reuters poll of economists found.

While the 2018 growth outlook was once again upgraded in the latest poll of over 100 economists taken Feb. 8-14, expectations for when the Fed’s preferred inflation measure reaches its target was pushed back a quarter to early next year.

The poll forecast the Fed’s preferred inflation gauge – core PCE prices – would average below the 2 per cent target in each quarter this year. The survey was taken before news on Wednesday that US consumer prices, a separate measure of inflation, rose more than expected in January.

Still, the Fed is likely to raise rates three times in 2018, in line with the central bank’s own projections, even though some US policymakers are still worried about weak wage inflation and overall price pressures.

But the unemployment rate is at a 17-year low of 4.1 per cent, and many economists are warning that more fiscal stimulus right now is not what the Economy needs.

“The timing and the composition (of tax cuts) was wrong. Infrastructure spending could have done more for productivity and future growth than giving businesses more money,” said Brian Schaitkin, a senior U. S. economist at The Conference Board.

Although Fed Chair Jerome Powell, who took over from Janet Yellen this month, is widely expected to follow his predecessor’s predicted policy path, the probability of more than three rate hikes this year has increased.

A handful more economists expect four rate hikes this year than in last month’s poll.

After the January inflation numbers, markets were pricing in about a one-in-four chance of four rate hikes this year, up from about one-in-six last week.

The consensus view in the poll was for the federal funds rate to go up in March by 25 basis points to 1.50-1.75 per cent. The Fed is then expected to hike in the second and third quarters, taking rates to 2.00-2.25 per cent by end-2018.

TAXING QUESTION

Suggesting the $1.5 trillion tax package could shift forecast risks toward higher rates, and faster, about 90 percent of over 50 economists who answered an extra question said passing the cuts was wrong given unemployment is so low…..read more

Rural debt, distress, death to be in focus as 8 states go to polls in 2018

A key manifestation of farm distress is rising rate at which farmers are committing suicides and its association with their inability to repay loans

Nearly four in ten of 8,007 Indian farmers who committed suicide in 2015 were in debt, compared to two in ten in 2014; more rural households went into debt over 11 years; and the average rural household had borrowed Rs 1.03 lakh, according to an IndiaSpendanalysis of government data.

The Bharatiya Janata Party (BJP) lost 16 seats in rural Gujarat–winning less than 40% of such constituencies–as unrest grew in a failing farm economy. As eight states, including the BJP-run, largely agrarian states of Chhattisgarh, Madhya Pradesh (MP) and Rajasthan go to the polls this year, we investigate, in a two-part series, how rural debt, distress and death are growing nationwide.

In an era of increasingly uncertain weather and suicides on farms, attributed to climate change and likely to worsen, the rural economic downturn is likely to be an important issue in the general elections of 2019, and it is unlikely Prime Minister Narendra Modi’s promise that farmers will double their incomes by 2022 will be kept, as IndiaSpend  reported in December 2016.

Chhattisgarh, MP and Rajasthan had a collective rural population of 123.6 million in 2011, equivalent to the current population of Mexico, the world’s 11th most populated country. Agricultural growth rates in all three states have declined, Hindustan Times reported in December 2017, while farmer unrest roiled MP and Rajasthan, as farmers struggling with falling crop prices demanded loan waivers and government guarantees for higher prices.

A key manifestation of the distress is rising rate at which farmers are committing suicides and its association with their inability to repay loans.

One in four farmers committing suicide are in debt

As many as 8,007 Indian farmers committed suicide in 2015, an increase of 41.7% from 5,650 in 2014, and 39% of farmers who died in this manner were in debt, according to 2015 National Crime Records Bureau data, the latest available. In 2014, 20.6% of farmers who killed themselves had borrowed money.

One in three Indian rural households were in debt in 2013, an increase from 26.5% in 2002. The average debt per indebted rural household in 2013 was Rs 1.03 lakh–almost equal to the price of a Royal Enfield Bullet 350 (Rs 1.09 lakh), more than a high end version of the iPhone X (Rs 1.02 lakh) and a Panasonic 55-inch flat screen TV (0.99 lakh). This is an indication of the gulf in urban and rural areas, where 833 million or 68.8% of Indians live, most of them poor………..read more