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Stronger In a Range


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Ending The Week On A Soft Note


Bearish Risk Growing


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SP500 PE Ratio vs. CPI Inflation

     WASHINGTON (MNI)  - The following is a response of Federal Reserve Chairman
Janet Yellen to a question from a reporter at her press conference following
Wednesday's Federal Open Market Committee meeting.
Question from :
     I want to follow up on the question about tax changes. When you addressed
it earlier today and spoke to congress last month you describe that you would
welcome higher growth in the context of the employment and inflation mandate. I
wonder how you judge the major provisions of the house and senate tax plans,
corporate rate cut, immediate expensing of big ticket purchases, new rates for
pass throughs, temporary rate cuts for individuals. Do you see those on balance
boosting the productive capacity of the U.S. economy, as opposed to simply
increasing aggregate demand? 
     Related to that, how would you view the benefit of such tax changes now,
when the economy is nearing full employment, versus at earlier periods when
there was greater resource slack? 
     So, I think my colleagues and I mainly see the likely tax package as
boosting aggregate demand, but also having some potential to boost aggregate
supply. So changes on the corporate tax side, the reduction in the corporate tax
rate, expensing, are the lower the cost of capital, and while there are a range
of estimates and uncertainty about how much stimulus that will provide to
investment, in general, I would see some stimulus to investment. In terms of
aggregate supply effects, stronger pace of investment could boost capital
formation and thereby raise productivity growth and potential GDP or output to
some extent. Exactly how large those effects might be remain uncertain, but that
is a channel. 
     And I suppose it's also possible, I'm uncertain how significant this would
be, that lower marginal effect of tax rates for those groups that will see them
could boost labor supply, and again there are a range of estimates in the
literatures. I indicated I think participants have reviewed a number of pieces
of analysis, including the joint committee on taxation estimates, and the many
outside analysts who have weighed in on this and been influenced by that kind of
     But there is a good deal of uncertainty about what the impacts would be.
And to the extent that there are larger impacts than those analyses assume on
aggregate supply or potential GDP, in the context of an economy that's had
disturbingly low productivity growth, that would be welcome, and could support
faster GDP growth at least for some period without creating the need to tighten
monetary policy to offset that. 
     So there are potentially both demand and supply effects here. Importantly,
you really don't, at the end of the day, see very much change in the federal
funds rate path. Participants do recognize that the unemployment rate is lower
than their estimates of its long run sustainable rate, so I think we are in the
vicinity of full employment.
--MNI Washington Bureau; +1 202-371-2121; email: