Interest hike rates by FED
Federal Reserve officials at their
January meeting saw a brightening global economic picture and the effects of
recently passed tax cuts raising the prospect for solid growth and continued
interest rate increases.
The minutes of the Fed's Jan. 30-31
discussions showed that the officials were more optimistic about the economy
than they had been in December. They noted a stronger U.S. and global economy
as well as expectations that the Republican tax cuts enacted in December would
boost growth.
The minutes released Wednesday said
"a majority of participants noted that a stronger outlook for economic
growth raised the likelihood that further gradual policy firming would be
appropriate."
The Fed held rates steady at the
January meeting, which was the last to be led by Janet Yellen before her term
as chair ended this month and she was succeeded by Jerome Powell. Last month's
meeting preceded the stock market plunge in early February and the budget deal
in Congress that will boost spending on military and domestic programs by an
additional $300 billion over two years.
Some economists have suggested that the
market turbulence and the prospect of higher federal debt — and higher bond
yields — might make the Fed more cautious about raising short-term rates.
But others say they think the central
bank will discount those developments and focus instead on the stimulative
effects of the Republicans' $1.5 trillion tax cut and the additional spending
from the budget deal. The possibility of higher inflation resulting from the
tax cuts and spending increases could even make the Fed likelier to tighten
credit.
Paul Ashworth, chief U.S. economist at
Capital Economics, said he is forecasting four Fed rate hikes this year on the
basis of his expectations that inflation will finally rebound this year and the
decisions by Congress to cut taxes and boost spending will increase economic
growth.
The Fed raised rates three times in
2017 and signal at its December meeting that it expected to do so three more
times in 2018. But many analysts now think the Fed may accelerate its rate
increases and boost rates four times this year. That would likely cause
consumer rates such as mortgage rates to rise more quickly.
Investors are awaiting the release
Friday of the Fed's twice-a-year monetary policy report to Congress for further
clues to the likely path for rate increases. They will also be listening next
week when Powell testifies on Capitol Hill about the report. It will be
Powell's first public appearance since he assumed the Fed's chairmanship early
this month.
Powell, who has been a Fed board member
since 2012, was tapped by President Donald Trump to be the next Fed chairman
after the president decided not to offer Yellen a second term.
Powell is expected to continue the same
gradual approach to raising rates that Yellen followed.
