There has been some uptick in estimates for fourth-quarter U.S. gross domestic product (GDP) and inflation coming into 2018. After all, the surging stock market would help support those trends, which the Federal Reserve needs to be in place to justify continued rate hikes in 2018.

The Consumer Price Index (CPI) was up 2.1% year over year on the annualized headline CPI for December of 2017, and the core rate (excluding food and energy) was up 1.8% from the prior year. These are still pushing up against the Fed’s 2.0% to 2.5% targets.

The next GDP report is scheduled for Friday, January 26, and the Reuters poll is calling for a gain of 3.0%. This figure may be adjusted higher, but note that this is the first look and the revision may have much more detail in it.

On January 12, the Atlanta Fed’s GDPNow model forecast for real GDP growth in the fourth quarter of 2017 was raised to 3.3% on a seasonally adjusted basis. That is up from a forecast of 2.8% that was in place just two days earlier.

Also rising was the Atlanta Fed’s forecast of fourth-quarter real consumer spending growth. This rose to 3.8% from the prior 3.0% forecast, boosted by strong retail sales and after the release of the CPI. Remember that roughly two-thirds of GDP is derived from consumer spending activity in the United States.

The next GDPNow forecast will be released on Thursday, January 18.

On January 11, the New York Federal Reserve hosted a speech by Fed President William Dudley. He noted that the economy in 2018 is likely to see inflation tick higher. The economy also is likely to continue to grow at an above-trend pace, and he noted that this should lead to a tighter labor market and faster wage growth. While Dudley was optimistic for the near term, he was more cautious over the longer-term views:

Under such conditions, I would expect the inflation rate to drift higher toward the FOMC’s 2 percent long-run objective. … Over the longer term, however, I am considerably more cautious about the economic outlook. Keeping the economy on a sustainable path may become more challenging. While the recently passed Tax Cuts and Jobs Act of 2017 likely will provide additional support to growth over the near term, it will come at a cost. After all, there is no such thing as a free lunch.

Another expected boost from GDP is what companies are saying about tax reform, issuing raises and bonuses, and some raising expectations for 2018 as a whole. Dropping the corporate federal tax rate to 21% from 35% is going to make the U.S. corporations far more competitive against foreign companies. Ditto for a territorial tax system and repatriation, and ditto for immediate expensing.

Goldman Sachs also issued an outlook on January 16. The brokerage firm sees above-trend growth in the United States, the euro area and Japan, as well as continued strength across Asia, except for a modest slowdown (of growth) in China. The firm also sees a firming up of inflation in the United States and Asia but sees what it called a “continued lowflation” for Europe. Goldman Sachs now sees four interest rate hikes from the Fed in 2018, which is one hike more than most forecasts at the start of 2018.

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