by Calculated Risk on 3/02/2018 11:48:00 AM

There is an axiom in investing that when the story changes, pay attention. As an example, if a company changes their focus, reconsider your investment.

Over the last several years, the economic story has been consistent: Strong employment growth, steady economic growth (solid given demographics), low inflation, and an accommodative monetary policy - with no fiscal stimulus. I noted several times that the future was bright, and in late 2016, I pointed out that the cupboard is full.

With minimal policy changes in 2017, and a stronger global economy, the US economic expansion continued, pretty much as expected.

But in 2018, the story is changing.  We are seeing some economic tailwinds and some headwinds.  Although the tax changes are poorly conceived, and mostly benefit high income earners, there should be some short term boost to economic growth.   That might lead the Federal Reserve to raise rates a little quicker than anticipated.

And, for housing, the tax changes could negatively impact a segment of the housing market, and rising mortgage rates are another headwind.  Note: I'm tracking housing inventory this year to see if there is an impact.

And now the Trump administration is proposing tariffs and talking openly talking of a trade war.   That is a downside risk to the economy.

As economists at Nomura noted this morning: "A sharp deterioration in financial conditions and aggressive trade policies by the Trump administration present notable risks."

I still think the economy will be fine in 2018, but the story is changing.