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Macro Comment US

Macro Comment US — Success has its price

After the Senate approval of a tax bill on Saturday, we have changed our view and now believe that tax reform will become reality. Presently, success seems more important than substance. In other words, Republicans, who are in desperate need of success ahead of next year's mid-term election, hope to sell a tax reform focused on corporate tax cuts, even though those cuts in reality are financed by their middle-class voters.

Macro Comment US — Tax reform now at the Senate floor

We do not believe that the Republicans are able to pass a tax reform, since the barriers are gigantic. Our view is that the Republicans in the Senate will fail to pass its tax bill this week. However, if we are wrong and the Senate would pass such a bill, we do not think that the House and the Senate could negotiate a common tax bill version that can pass both chambers.

Macro Comment US — Republican tax reform toward defeat

We do not think the Republicans are able to pass a tax reform in Congress, but if they do, we expect a watered-down reform without the potential to lift growth sustainably. This article explains why the barriers to passing a tax reform bill are gigantic. One group's gain from the tax reform tends to be another group's loss. The rift goes between rich and poor, as well as between different regions. The slim Republican majority in the Senate reinforces the problems, as it makes it easy for small coalitions of Senators to block a decision.

Macro Comment US — Who will become the next Fed Chair?

Trump's idiosyncrasies make it hard to forecast which of the five candidates on his shortlist will become the next Fed chair. Our best guess is Gary Cohn. He is the only candidate on the list in favour of both low interest rates and financial deregulation. However, Trump sees him as disloyal, which could open the way for a nomination of Jerome Powell or Kevin Warsh, who are both considered personally loyal to Trump.

Macro Comment US — Balance sheet reduction in September

We revise our Fed forecast: we now believe that the central bank will hold rates steady in September and instead announce a plan to reduce its balance sheet at the meeting. In June this year, the Fed published a plan for quantitative tightening. Balance sheet reductions are not intended to play an active role in mone-tary policy during normal times. The Fed's intention is that they should run quietly in the background for years, while monetary policy is operated through adjustments of the federal funds rate.

Macro Comment US — Financial conditions key to the Fed

We are convinced that financial conditions-both actual and expected-are key to understanding why the Fed has not delivered in line with its forward guidance since the start of policy normalisation in late 2013. However, at present, consistency between forward guidance and policy delivering seems to be improving. So far in 2017, actual rate increases have been in line with the Fed's forward guidance. Nevertheless, we expect financial conditions to deteriorate sharply in the future, which will contribute to an end of policy tightening in 2018 and to prompt a recession in 2019.