by Frank Shostak via Mises
For most experts a key factor that policymakers should be watching is the ratio between actual real output and potential real output. The potential output is the maximum output that the economy could attain if all resources are used efficiently. In Q3 2020, the US real GDP–to–potential US real GDP ratio stood at 0.965 against 1.01 in Q3 2019.
A strong ratio (above 1) can be of concern because according to experts it can set in motion inflationary pressures. To prevent the possible escalation of inflation, experts tend to recommend tighter monetary and fiscal policies. Their preferred policy would be to soften aggregate demand, which is considered as the key driving factor behind the ratio’s rise above 1.
has had an upward year, the positive economic data has also helped, plus earnings have improved this year, so companies by an average are delivering bigger prospects. it s also working out that the prospect of tax reform which wall street has been excited about has also been part of the market rally. some analysts warn that tax reform may not be as positive for the u.s. economy as most companies are expected to spend the money they save from a lower tax rate on buying back their own stock versus spending it on employees. and that s where we ll have to see if president trump tries to exert pressure on businesses in terms of how to actually spend that money. also with the economy improving, the fed could very well hike interest rates multiple times next year, which means that your earnings or your savings increase, but also the cost of taking out a mortgage will go out. so that could potential be a risk for stocks in 2018. in terms of stocks or sectors, we are laser focused on
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