Fed policymakers show rising confidence on inflation

23 February, 2018, 09:04 | Author: Shannon Aguilar
  • Philadelphia

The Fed on Wednesday released the details of last month's policy meeting, which kept the key interest rate unchanged. 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 2 years.

Stock markets convulsed in the days following the January meeting.

Now all this is speculation and it's all of a negative kind, despite the fact that a more optimistic scenario could take place where the U.S. grows well, inflation only sneaks up slowly and interest rates rise slower than expected. In this context, we expect a gradual rise in underlying government bond yields, something we have dubbed a "good" increase in yields as opposed to a "bad" increase in yields.

Participants in the policy-setting Federal Open Market Committee (FOMC) meeting pointed to the tax cuts and improved global economic outlook as factors supporting U.S. growth this year, and many upgraded their forecasts, even while cautioning that the effect of the tax cuts is not yet clear.

Most Fed officials predicted in December that the Fed would raise its benchmark funds rate at least three times in 2018. The answer largely turns on inflation.

Most of the Fed members see the cost of living moving up towards their inflation goal of 2 per cent over the "medium term".

I am very happy to be participating in this symposium on taking stock of the global economy a decade after the Global Financial Crisis, and I thank Hiroshi Watanabe for the invitation.1 I have been asked to provide an overview of the US economy since the advent of the crisis in no longer than 10 minutes, so I could either talk very quickly or focus my comments on more recent developments, perhaps throwing in a bit of historical context when appropriate. The news pushed the us dollar higher and sent the yield for the 10-year Treasury note to a fresh four-year peak of 2.95%.

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But inflation pressures weakened, puzzling Fed officials and arguing in favor of slowing the pace of rate rises.

The meeting account said officials had less confidence about the outlook for inflation.

Hogan said the weakness in equities coincided with a jump in the yield of the 10-year Treasury bond to a four-year high, reviving worries that higher rates could crimp growth and potentially prod more investors to exit equities in favour of bonds.

At January's meeting, staff economists projected prices in this reading of so-called core inflation would rise "notably faster in 2018".

He said the Fed needs to follow the economy, which is showing strength but still little inflation. March silver climbed 24 cents, or 1.5%, to $16.68 an ounce versus settlement of $16.61 an ounce.

US President Donald Trump signed into law a Dollars 1.5 trillion tax overhaul in December, and Congress earlier this month approved a USD 300 billion increase in federal spending over the next two years.

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