“And now we welcome the New Year. Full of things that have never been.” – Rainer Maria Rilke

The U.S. Economy is starting to pick up steam. U.S. GDP registered 3.2% in the 3rd quarter. The unemployment rate is at 4.1%. These are both really good numbers. On the other side of the coin, inflation in the U.S. is 1.7%. While most people are happy with low inflation, if the inflation rate stays low, it means that the economy isn’t growing like it should. Combine the low inflation number with a lack of wage growth and it paints a different picture.

The U.S. Federal Reserve is still trying to normalize interest rates from the recession in 2008. They are walking a tightrope between allowing enough lending to occur to keep the economy growing, but not keeping rates so low that the economy overheats. As they continue to raise rates in 2018, they need to be sure that their do not stifle growth. This balancing act will be put to the test in 2018 as the current board chair (Janet Yellen) is replaced by Jerome Powell in February. In addition, President Trump will be appointing over half of the members of the Federal Reserve this year. The changing face of the Federal Reserve and whether they will be able to continue to walk the tightrope of tightening monetary policy while keeping the economy growing will be something to watch in 2018.

You have probably heard that President Trump and Congress passed a Tax Reform Bill right before Christmas. While there is still a lot to learn about how it will affect the economy, we do know that the reduction of the corporate tax rate from 35% to 21% will be a benefit to the company stocks that we own. While the benefit will differ from company to company, any reduction in taxes goes straight to the bottom line, increasing company profitability. Since the Tax Reform Bill affects all companies, it effectively lowers the price to earnings ratio of the entire stock market. This decrease in the P/E ratio helps to justify the recent stock market rally as well as reduce the chance of a stock market bubble.

In Cantlon Financial Planning news, we are proud to announce that we have been selected as the preferred financial advisor for the Northwestern Medicine Winfield Region Hospitals. This selection will allow us to help the employees of Northwestern Medicine better plan for retirement.

We would like to remind you that you can now opt-in to have us deduct our fees directly from your investment accounts. If we manage your pre-tax money, that means that you would be paying us with pre-tax money. You are not taxed on fees that we automatically withdraw from your IRA account. If you are interested in having us deduct our fees from your accounts, please let us know so that we can send you the requisite paperwork.

Sincerely,

Michael Cantlon
Thomas Guyett
Robert Gephart