If Senate can pass budget resolution, tax cuts have good chance: Zoellick

Robert Zoellick, the longtime Bush administration official and Republican foreign policy hand, says tax reform has a surprisingly good chance if the Senate is able to pass a budget resolution.

The House of Representatives already has passed a budget resolution that would allow for a tax-cutting bill to go through. Since Republicans traditionally agree on the need to cut taxes, and want to show some tangible action ahead of the 2018 midterms, tax reform is a natural step for Republicans to focus on.

Speaking to the Institute of International Finance’s annual conference, Zoellick said the chances for tax reform are between 50% and 60% if Senate Republicans can pass a budget bill.

The former World Bank president, U.S. trade representative and deputy secretary of state was less sanguine on the Trump administration. He said President Donald Trump is “transactional” rather than reliant on the postwar institutions that have guided other presidents. He expressed his concern with the North Korean situation and assigned a 10% chance of the U.S. striking North Korean missile facilities in the event of further action from the isolated nuclear aspirant.

At the same event, Mohamed El-Erian, the chief economic adviser of Allianz Global Advisers, tried to explain why markets seem so relaxed in the face of an erratic Trump administration. He said traders have been taught that buying on dips is a profitable strategy, and that it would take a shock for them to change that view.

He said that applies not just to U.S. equity markets but even to assets like the Turkish lira, which have recovered quickly in the face of negative news.

Ravi Menon, managing director of the Monetary Authority of Singapore, said one question that bankers are trying to confront is whether the natural rate of inflation is now closer to 1% to 1.5% than the 2% that many central banks, including the Federal Reserve, target. If that’s the case, central bankers need to be wary about providing too much stimulus.