The article reports that the economic growth outlook has reinforced their plans for keeping, raising the short-term interest rates for this year. The Federal officials reportedly believe, to trust that economy will grow at a faster rate as compared to December. After meeting in December, the Congress had approved the tax cuts, and the stocks have boosted economic growth in the following months reaching new heights. It has helped the economy to strengthen. The rising price and increment in wages and fuel are pressurizing the federal officials to increase the rates before planned time. The bond yields have been seen to climb to their four year’s highest levels.
Another factor is the governments larger than an expected spending plan. It predicts that the Federal officials would be needed to raise the interest rates faster. The federal professions for short-term interest rates and the tax cuts were both planned to take into account of each other. The effect of this raising of the interest rates is thought to be uncertain be seen in the next term. The economic growth has provided that the increase of short-term rates would be now more appropriate.
The Federal Reserve has increased its interest rate from its past seven-year benchmark rate of zero. The Fed has increased this rate five times since the year 2015 from 1.25% to 1.5%. The next meeting is likely to be the one in which next batch of interest rate increment will be implemented. The plan for raising the rate is dependent on the inflation rate progress. If these increments will cause an increment in inflation towards the 2 % target, then it would certainly follow its planned increments.
The planned tax cut of $ 1.5 trillion and $ 300 billion increments in government spending would cause the unemployment rate to decline to the level which was not witnessed in half a century. The Federal Reserve has warned that because the economy is going to operate at a higher rate than potential, imbalances in the market can be witnessed. However, the recovery from the 10% decline in the stocks and a rise in bond yields has given comfort to the Feds who were expecting dangerous asset bubbles. The Fed now expects that the savings from taxes by companies would increase capital as well as consumer spending boosting the economic growth (Timiraos).
Work Cited
Timiraos, Nick. “Fed Officials Marked Up Growth, Inflation Outlook in January.” The Wall Street Journal. The Wall Street Journal, 21 February 2018. Web. 22 February 2018. https://www.wsj.com/articles/fed-officials-marked-up-growth-inflation-outlook-in-january-1519239983.
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