BMO Capital Markets has bumped its 2011 economic forecast for the United States to 3.0% from 2.3%, in response to a U.S. tax cut package.

In a research note, BMO calls the latest stimulus deal, “a welcome boost for the U.S. economy, household and business confidence and, by extension, Canadian trade.”

BMO says that the deal provides net new stimulus next year through a two percentage point reduction in the payroll taxes, which represents a US$120 billion tax cut; a provision to allow all companies to fully expense the cost of equipment purchased in 2011; an extension of the Bush tax cuts until the end of 2012; an extension in unemployment benefits; two year extensions of various individual tax credits; and a lower estate tax.

“All of these measures will have a meaningful impact in boosting consumer and business spending, adding as much as a percentage point to 2011 GDP growth, and it should boost corporate profits and spur job creation, thereby kick-starting confidence,” it says.

As a result, BMO is boosting its U.S. growth forecast, noting that real GDP should reach a new high in the first quarter of next year, “marking the end of the recovery and start of the expansion.”

Additionally, BMO says that this fiscal stimulus “makes the Fed’s job a lot easier”, likely reducing the size and length of its latest quantitative easing program.

“In our view, this is just what the doctor ordered: stimulus through 2012,” it says. And, it says that the market appears to agree, as evidenced by a spike in Treasury yields this week. “This should take some upward pressure off of the loonie and provide a lift to Canadian trade with the U.S, the one sector that has dragged down our economy this year,” BMO says.

IE