US tax cuts may unleash a lot of investment, Fed's Bullard says

A top US central banker and one of the foremost 'doves' in policy-making circles in the States said the recently enacted tax cuts should not force the monetary authority to tighten policy more quickly.

Speaking at the end of the week, the president of the Federal Reserve bank of St.Louis, James Bullard, also held out the possibility - contrary to the views of many observers - that the new tax bill might unleash "a lot" of investment in the US which might result in an "outsized effect" on the economy.

Nonetheless, Bullard's 'base case' was for only a modest increase in capital spending, which although it might only boost the economy's potential rate of economic growth by a few tenths of a percentage point, would constitute an important development over the long-run.

Hence, in his opinion recent gains in the stockmarket were not irrational, although he was concerned that further interest rate hikes might lead to an inversion of the yield curve - historically a signal of rough waters ahead for the economy.