As we are approaching Friday, the Inauguration Day of Donald Trump, it is high time to ask: Will Trump administration influence Fed rate hikes pace?
18 January, AtoZForex – The President of San Francisco Federal Reserve (Fed), John Williams believes that the US interest rates should rise at a steady speed. Moreover, Mr. Williams stated that the rates hikes should be spread over the next few years in order to avoid overheat in the economy.
Will Trump administration influence Fed rate hikes pace?
While calling for the steady interest rates pace, Mr. Williams warned about the potential crisis in case of too fast pace. According to San Francisco Fed President, the US unemployment now is standing at 4.7 percent. Additionally, he believes that the country has reached full employment. Also, Mr. Williams mentioned that the US inflation is on track to hit 2 percent target over the next years. John Williams has added:
"Looking ahead, further gradual increases in the target fed funds rate will likely be appropriate to bring monetary policy back to a more normal setting consistent with an economy at full strength. If we wait too long to remove monetary accommodation, we hazard allowing imbalances to grow, requiring us to play catch-up, and not leaving much room to maneuver."
In December 2016, the central bank has lifted its interest rates by a quarter percentage, from 0.5% to 0.75%. Moreover, the Fed policymakers forecasted as much as three rate hikes in 2017. Mr. Williams did not mention how many interest rate hikes he expects in 2017. Also, he did not provide any comments in terms of the incoming administration in face of Donald Trump and his policies.
Fed Brainard: Trump might cause faster rate hikes pace
During his presidential campaign, Donald Trump has signaled that he intends to increase the government spending and cut the corporate and personal taxes. Such policies might spur the US economy to grow faster. This, in turn, might force the central bank to raise the rates faster.
A top Federal Reserve supporter of low-interest rates stated that the Fed might increase the interest rates more aggressively in case the deficit spending under the new administration will spur an economic boost. Fed Governor Lael Brainard has further added:
"If fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid.”
Ms. Brainard has called for the cautious approach to rate hikes since she has joined the central bank’s Board of Governors in 2014. However, on Tuesday she appeared on the other side of the table. Ms. Brainard made it clear she believes that the increase in the budget deficit might fuel the inflation. Also, she stated that the US economy is already at full power. This could lead to Fed increasing the interest rates more aggressively.
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