GDP growth for the the 4th quarter of 2006 has been revised upward to 3.5 percent. The Dow was trading in the plus side before the Fed released its monthly report but it jumped on the Fed’s assessment that the economy remains strong. Also factoring into the jump was the Fed not changing the Fed interest rate.

Stocks shot higher Wednesday, sending the Dow Jones industrials up by triple digits after the Federal Reserve answered two of Wall Street’s major concerns, indicating that the economy remains healthy and that inflation pressures are easing. In midafternoon trading, the Dow was up 116.08, or 0.93 percent, at 12,639.39.

I’m not an economist but I’d have to think that this likely means that tax receipts will continue pouring into state and federal coffers in healthy amounts. That should translate into a smaller federal budget deficit and larger state surpluses. The exceptions to the larger state surpluses would be Michigan and California, states that haven’t heard of fiscal sanity. This article seems to support that opinion:

Budget estimates released Wednesday showed some improvement in the deficit but gave little solace to Democrats struggling to match President Bush’s promise to balance the budget. The new forecast from the CBO put the deficit for the current budget year reaching about $200 billion after factoring in Iraq war costs. Last year’s deficit was $248 billion. Both the White House and the top Democratic budget writers welcomed the improved outlook, but difficult disagreements remain over how to close the gap.

If the economy keeps growing at this rate, we should a sizable reduction in the federal deficit for FY 2007. In fact, I’d say that a case can be made that the Bush economy is more impressive than the Clinton economy because the surpluses during Clinton’s term happened while he ignored terrorism during a time of supposed peace. Bush’s deficits are now dropping significantly while fighting a multi-faceted, multi-front war against the Islamofascists.

If the CBO is right, the deficit would drop by $50+ billion dollars this year. History tells us, though, that the CBO is almost always wrong. Expect further deficit projections to show even more reductions in the deficit. Don’t be surprised if they revise the deficit downward another $25 billion.

The Fed, which issued its economic assessment as it decided to leave short-term interest rates unchanged at 5.25 percent, said recent indicators “suggested somewhat firmer economic growth” and tentative signs of stabilization in the housing market. Investors also appeared pleased by the central bank’s comments that readings on core inflation have “improved modestly” in recent months.

In other words, the Fed thinks that the Bush Recovery is on solid footings and should continue on its pace.

Technorati: , , , , , , , ,

Cross-posted at California Conservative

One Response to “Dow Jumps On GDP Revision”

Leave a Reply