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Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
As the legislation is set to expire on December 31, 2025, discussions about whether to extend or let it lapse are intensifying. The decision will have major implications for tax rates, the federal budget, and economic growth.The TCJA lowered corporate tax rates, reduced individual income tax brackets, and increased deductions such as the Child Tax Credit. However, many of its provisions, particularly those related to individual taxes, are set to expire at the end of 2025.In a Thursday note, economists at Wells Fargo highlight the key scenarios that could unfold depending on the election outcome.A full expiration of the TCJA would lead to a tax hike starting in 2026, which could tighten fiscal policy. However, economists doubt this scenario alone would be enough to push the U.S. into a recession. The impact on economic growth would likely be modest, reducing GDP by a few tenths of a percentage point in 2026 and 2027.“If the TCJA were to expire as scheduled, it likely would dent economic growth in the near-term—though not enough to knock the U.S. economy into a recession,” according to the note.On the other hand, if the TCJA is extended in full, it would come at a significant fiscal cost, adding around $4.6 trillion to the federal deficit over the next decade.Wells Fargo projects this would increase annual budget deficits to 7-8% of GDP, a level of borrowing rarely seen outside of wartime or recession. Despite this, the note suggests that extending the TCJA might not drastically alter economic growth projections:“Extending the TCJA would avert fiscal tightening rather than expand fiscal accommodation,” economists explained.Looking ahead, Wells Fargo considers potential policy changes depending on the election outcome.Republicans generally favor extending or even expanding the TCJA, while Democrats are more likely to pursue a partial extension.Vice President Harris supports extending the tax cuts for those earning under $400,000 per year but letting them expire for higher earners. The economic drag from such a partial extension would be relatively small, with GDP growth expected to slow by about a tenth of a percentage point in 2026.Ultimately, the decision on the TCJA will depend on the results of the 2024 election.A Republican sweep could pave the way for a full extension or further tax cuts, while a Democratic victory could lead to a more limited continuation of the law.Either way, the macroeconomic effects of any changes to the TCJA are unlikely to be felt until 2026, Wells Fargo points out, giving lawmakers time to negotiate a solution. More
While lower interest rates may provide some relief in terms of debt servicing costs, the overall impact on growth in the Gulf is expected to be limited.Capital Economics’ U.S. team believes that the Fed will reduce the fed funds rate by 25 basis points at the September policy meeting, with further cuts to follow, totaling 200 basis points by the end of 2025. As a result, Gulf central banks will lower their own rates due to their dollar pegs.“The so-called “impossible trinity” means that, because of the commitment to fixed exchange rates and the free movement of capital across borders, interest rates in the Gulf have to follow those in the US,” the firm explains.“Interbank interest rates closely track those in the US, albeit with a spread reflecting a premium demanded by investors to hold local currency instead of dollars.”There are two primary ways in which the looser monetary policy will affect the Gulf.First, lower interest rates will reduce debt servicing costs for businesses and households, providing opportunities to refinance or take on new loans at a lower rate. In the case of Saudi Arabia, where many loans are on variable rates, this should provide significant relief, potentially easing concerns about rising non-performing loans.Second, lower interest rates will affect the incentives to save and borrow. The report highlights that as returns on savings decline, households may be less inclined to save, boosting consumption. At the same time, borrowing costs will decrease, which should theoretically lead to a rise in credit demand.However, Capital Economics voices caution about the potential for significant credit growth.“Interest rates are likely to remain high by past standards,” and historical data suggests that oil prices, rather than interest rates, are the main driver of credit growth in the Gulf. High oil prices tend to improve fiscal conditions and stimulate non-oil sectors, creating a more favorable environment for borrowing. But with oil prices currently at $72 per barrel and not expected to exceed $75 in the coming years, the boost to credit growth is likely to be muted.Overall, the note concludes that while the Fed’s loosening cycle will bring lower interest rates to the Gulf, the broader economic impact will be limited. Capital Economics expects non-oil GDP growth across the region to slow, particularly as fiscal policy becomes less supportive over the coming years. More
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