By SNW Asset Management via Iris.xyz
Spoiler alert: easy money will continue to prolong the economic expansion – no inflation in sight.
The Federal Reserve kicked things off on Wednesday last week with a highly anticipated increase in the federal funds rate to 1.50%. The Fed also anticipates three further 25 bps increases in 2018. Additionally, the Fed’s balance sheet will shrink by $10 billion in December and $20 billion in January. Even with these changes monetary policy remains accommodating – rates are historically very low and money is easy.
Looking to the future, Yellen and economists at the Fed anticipate stronger GDP growth of approximately 2.5% this year and next along with lower unemployment. Inflation is still below expectations, but there is faith wage pressures will mount as companies increasingly scramble to find workers.
More interestingly, Yellen downplayed the impact of tax cuts. “While changes in tax policy will likely provide some lift to economic activity in coming years, the magnitude and timing of the macroeconomic effects of any tax package remain uncertain,” Yellen said, though she also suggested the tax package holds the potential to boost consumer spending and capital expenditures.
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