FOMC Excerpt: Tax Cuts to Offer Modest Spending Boost-Text>

     WASHINGTON (MNI) - The following are excerpts from the Federal Open 

Market Committee minutes of the December 12 - December 13 meeting, 

published Wednesday: 

     Many participants expected the proposed cuts in personal taxes to 

provide some boost to consumer spending. A few participants noted that 

expectations of tax reform may have already raised consumer spending 

somewhat to the extent that those expectations had spurred increases in 

asset valuations and household net worth. A number of participants 

expressed uncertainty about the magnitude of the effects of tax reform 

on consumer spending. 

     District contacts were optimistic, and their reports were generally 

consistent with continued steady growth in business spending. Reports 

from District contacts about both the manufacturing and service sectors 

were generally positive. In contrast, reports on housing and 

nonresidential construction were mixed. Activity in the energy sector 

continued to firm, with transportation bottlenecks and residual effects 

of the hurricanes putting some upward pressure on gasoline prices. In 

the agricultural sector, farm income was under downward pressure due to 

low crop prices, and contacts expressed concern about the effects of the 

possible renegotiation of trade agreements on exports. 

     Many participants judged that the proposed changes in business 

taxes, if enacted, would likely provide a modest boost to capital 

spending, although the magnitude of the effects was uncertain. The 

resulting increase in the capital stock could contribute to positive 

supply-side effects, including an expansion of potential output over the 

next few years. However, some business contacts and respondents to 

business surveys suggested that firms were cautious about expanding 

capital spending in response to the proposed tax changes or noted that 

the increase in cash flow that would result from corporate tax cuts was 

more likely to be used for mergers and acquisitions or for debt 

reduction and stock buybacks. 

     A few participants noted that a reduction in personal tax rates 

could potentially increase labor supply, but the magnitude of such 

effects was quite uncertain. 

     ** MNI Washington Bureau: (202)371-2121 ** 

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