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The Market Wrap for January 5: Fed Raised GDP Projections Based on Tax Cuts

Asif Imtiaz Jan 05, 2018

Bulls dominated the first week of the year, pushing the Dow closer to the 25,000 mark, and NASDAQ closed above the 7,000 mark for the first time after the Fed increased its real GDP projections for the next few years.

The Fed’s latest meeting minutes kept analysts busy this week as the FOMC minutes revealed several key factors that will shape the U.S. economy in 2018. While the Fed continued to worry about low inflation, policymakers committed to hiking interest rates three more times this year. However, they justified the decision by saying that the corporate tax cuts will likely have a positive impact on the real GDP, which prompted bulls to push the Dow and NASDAQ to new highs.

We will have to wait to see how the inflation situation played out during the strong holiday sales last month, but the strong vehicle sales data this week already signaled sturdy consumer confidence and we should expect more good news from corporate earnings in the coming weeks.

To conclude, while pundits were busy picking apart the negative aspects of the GOP’s new tax regime, Fed policymakers seem to have given a seal of approval that it will help generate economic growth in the coming years. If we see positive earnings from major corporations in Q4, it will likely accelerate the bullish momentum in the equities market.

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