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March Fed Rate Hike Marks an Optimistic Outlook for 2018

Wed Mar 21, 2018
watermark Economic news

The Federal Reserve is anticipated to execute the rate hike on its first policy meeting under Jerome Powell that could also mean more tax cuts and government spending that could boost the U.S. economy.

It has been forecasted last year, that rates could be increased three times this year, however, some investors presume that fiscal stimulus, as well as, signals of inflation would trigger other rate hikes from the policymakers.

The Federal Reserve is set to publish its latest policy statements at 14.00 EDT (18.00 GMT) and followed by a press conference of Powell to be held half an hour later.

The Federal Reserve’s actions are presumed to attract more Americans despite a tight labor market and raise the inflation aiming for the two percent target of the central bank or much higher if the economy becomes too hot.

However, there are concerns if the Federal Reserve would have raised concerns too soon under their new leadership and bring tighter monetary policies until it becomes clearer adding to the outside pressures to the economy such as risks of a global trade war.

A former Fed economist, Roberto Perli,  sees that the Fed would probably pursue their interest rates for the year and see a “prudent institution” to have more impact in the given situation.

The Fed stimulus is likely to boost the world’s biggest economy amid the financial crisis in the period of 2007 to 2009 is about to recover. Benchmark on lending rates has been augmented overnight ranging from 1.25 to 1.50 percent amid the drop in jobless data and improved economic growth. Hence, it is likely that the rates will be increased by 25 basis points on Wednesday.

Future markets are looking for another increase after three months while Powell could keep the rates unchanged until the economy gains a stimulus of $1.8 trillion as expected amid the imposition of tax cuts under the Trump administration, including their presumed spending.

Recently, home sales and retail spending have been performing not so well while the general economic outlook has gotten better. Inflation was seen to have been more robust after it has been on the lows for more than five years, far from the central bank’s target figure. Meanwhile, there were also indications of wage gains.

The central bank is predicted to boost the economic growth forecast for 2019 and the probability of fall in unemployment rate below the current value of 4.1 percent, which may be low but it is currently at a stable rate.

The huge jump on the U.S. jobs data for February could state that Powell and Fed’s officials could carry out a “gradual” rate hike at a longer period than initially planned. Consequently, this would raise or keep it at neutral as expected of the policy rate from Fed for long-term, which is currently at 2.8 percent.

Initially, the transfer of power from Fed chief Janet Yellen to Jerome Powell has induced a global market sell-off for short-term, after his statements as the U.S. lawmakers indicating his optimism to the present economic outlook. Yet, the statements from the hawkish central bank have stricken concerns given the cautious stand of Powell following a consensus-building approach.

About half of 15 Fed policymakers have updated their forecasts on Wednesday, confident that the fiscal stimulus would boost expectations for the economy and/or the rate hike, based on the analysis of public statements.

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