The tax cuts will weigh on the US economy according to Dudley (Fed)


NEW YORK (Reuters) – The president of the branch of the federal Reserve in New York, William Dudley, has criticized Thursday the tax cuts passed at the instigation of Donald Trump in the United States, believing that they would put the u.s. economy on a path to fiscal unsustainable and threaten the economic stability.

William Dudley, who has been one of the most ardent advocates of the policy of massive support to the u.s. economy conducted for ten years by the Fed, added that the tax reductions granted to individuals and businesses would stimulate the economy in the short term, but that they would be more vulnerable in the years to come.

These statements, made at a forum of Wall Street, show that if the u.s. federal Reserve has little reason to deal with this fiscal stimulus, its authorities will not hesitate to criticize his timing and economic assumptions of its supporters are republican.

“The economy is on a strong stimulus, monetary policy is still accommodative, financial conditions are favorable, and the tax policy should provide a dynamic. But there are some big ominous clouds on the long term,” said William Dudley, who will leave his post by mid-2018.

The tax cuts, he warned, “will have a cost”.

The u.s. president has signed, in December the law which reduced the tax rate on corporate profits from 35% to 21%, and the tax rate maximum on the income of individuals of 39.6% to 37%.

But with a robust economy and an unemployment rate of 4.1%, the lowest since 17 years, the expected impact on the economy could be modest. This tax reform should also add 1.500 billion dollars (nearly 1.250 billion euro) over ten years to the budget deficit of the United States, already estimated at 20,000 billion over the same period.

Wednesday, the president of the Dallas Fed, Robert Kaplan, stated that the Fed should monitor the “risk of overheating” of the u.s. economy, considering the enormous tax cuts which should boost investment, but that could bring the level of the debt to levels unsustainable in the end.

(Jonathan Spicer; Catherine Mallebay-Vacqueur for the French service)

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