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Real Time Tax Data Blasting Off, When and How Will Fed Tighten?

The Federal Government’s withholding tax collections have continued to strengthen this month apparently as part of the usual 3-4 month cycle that should now be near its peak. The annual growth rate this week was around 6.2% in nominal terms and probably 3.2-3.7% in real terms.

If tax collections grow at a faster rate than this, it would suggest an overheated economy that is blowing off. This is a theme that I have repeated often in the past 6 months based on this data and initial unemployment claims. Yesterday a report surfaced from Citicorp’s research department that it is thinking the same thing. As usual the mainstream is 6 months to a year behind us in paying attention to the data and noticing things that may be important. As this opinion on the economy becomes more widespread, the speculation on the Fed raising interest rates builds.

So what should we look for?

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