U.S. Tax Cuts Can Reduce the Pressure on the Fed Policy of Quantitative Easing

Submitted By: Orietta Qi
The progress in advancing the tax cuts also contributed to the U.S. economy, economists more optimistic about the prospects for recovery, has recently announced a number of agencies have raised the growth forecast for the U.S. economy, many people think that U.S. economic growth next year, more than 3.5 %.

U.S. Department of Commerce data show that the first three quarters of this year, U.S. economic growth was 3.7%, 1.7% and 2.5%. Institutions is widely expected this year, the U.S. economy may be around 2.8%, 3.5% difficult to achieve this in the Economist seems to be more significantly reduced the level of unemployment.

Overall, many economists expect tax cuts may result in economic growth next year, the United States increased by 0.5 to 1 percentage point, and significantly reduce unemployment. Feiluo Li, chief U.S. economist at JP Morgan 7, said Obama's tax cuts to reach an agreement with the Republican Party, U.S. economic growth next year may bring increase of no more than 0.5 percentage points. He said that all tax cuts promote the role of consumption, is expected to drive economic growth in the United States in 2011 from the previous forecast of 3% to 3.5%.

Decision Economics economist Xinnai company also put on the forecast for U.S. economic growth next year, increased 0.5 percentage points to 2.75% to 3%. Deutsche Bank economists said that the payroll tax reduction policy may increase output next year, 0.7 percentage point, the bank expects U.S. economic growth next year will reach 4.1%.

Goldman Sachs economists said the new tax cuts to stimulate the scale of 2011 brought more than expected before the bank has 185 billion U.S. dollars per cent more, and does not include provisions related to corporate income tax.

Tax effect of alternative "QE3"?

The United States to increase efforts in tax cuts to stimulate, to some extent, to the Federal Reserve to continue to launch large-scale quantitative easing policy reduced pressure. Last month, the Fed announced that it will in the next year before the acquisition of 600 billion U.S. dollars in U.S. Treasury bonds. Fed Chairman Ben Bernanke said last week, does not rule out further expand the scale of asset acquisition.

From a financial market performance, investors seem to have the Federal Reserve will raise interest rates ahead of time had some expectations. New York on Tuesday, 10-year Treasury yield was significantly increased, to six new high.

Of the tax cuts to stimulate economic recovery is expected to optimistic expectations, but also propped up the dollar. On Wednesday the European trading, the dollar index surged 0.5% to 80.40 near the 80 recovered a key psychological barrier. This is the third straight day U.S. dollar higher. On Tuesday the U.S. market, the dollar index rose 0.3%. The dollar's strength is also putting pressure on commodity, oil, gold fell to varying degrees on Wednesday.

However, some professionals are not so optimistic about Obama's tax cut strategy. Pacific Investment Management Company CEO, the author pointed out that tax cuts alone can not effectively increase the employment in the United States, the U.S. economy is the need to enhance competitiveness.

Significance of Obama's tax cuts announced, said although significant, but in the end is a product of political compromise, far from "perfect." Moreover, from the program have been included and not included in the two aspects, can see its limitations, although these measures may contribute to economic activity, but not the most efficient way to stimulate the economy, it is difficult to resolve within the United States income imbalances.

In the long run,that the U.S. economy's biggest problem is the decline in competitiveness. Still subject to U.S. competitiveness and education infrastructure behind, and resource allocation is not coordinated.