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Fed set to raise interest rate for 1st time in a year
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THE Federal Reserve was set to end its two-day policy meeting yesterday with an interest rate rise all but assured and will issue new forecasts assessing whether the economic outlook has changed since the US election.
Markets are poised for the federal funds rate to rise to a target range of between 0.5 and 0.75 percent from the range of 0.25-0.5 percent, where they have been since the Fed approved its last rate rise a year ago.
Of more significance is the backdrop of the meeting.
After years of the Fed fretting about low interest rates and weak inflation, the weeks since Donald Trump's victory have seen both bond yields and inflation expectations start to rise. The Dow Jones industrial average has risen over 11 percent since the vote.
Details of policymakers' new economic assessments, the first since the election, will be dissected closely to see if policymakers yet feel the arrival of the Trump administration has shifted the economic outlook or poses a risk of greater inflation.
The president-elect has said he wants a major tax cut and infrastructure spending program, even as the economy approaches full employment and wages are rising.
"Inflation risks are more significant than they were three months ago," when the policymakers issued their last forecasts, said Northern Trust chief economist Carl Tannenbaum.
“Rates could well rise more than anticipated,” he said.
Despite the changed circumstances, it is not certain the Fed will budge on its assessments. The median forecast of policymakers as of September was for two interest rate increases in 2017, an outlook Tannenbaum and many analysts feel may remain the case.
Trump has not yet taken office, and any proposals would have to clear a Republican-controlled Congress that may be stricter about increasing public debt than Trump.
In recent public appearances some Fed officials have said they see a chance Trump's policies may force them to speed the pace of rate increases, yet also said they are hesitant to change their outlook before the president-elect shares more details.
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