The Federal Reserve Board is set this week to raise interest rates for a third time this year to prevent the economy from growing too fast.
Martin Crutsinger of the Associated Press had the news:
But with President Donald Trump’s trade fights posing a risk to the U.S. economy, the Fed may soon be ready to slow its hikes.
Many analysts expect the economy to weaken next year, in part from the effects of the conflicts Trump has pursued with China, Canada, Europe and other trading partners. The tariffs and counter-tariffs that have been imposed on imports and exports is having the effect of raising prices for key goods and supplies and potentially slowing growth.
An economic slowdown would likely lead the Fed to throttle back on its rate increases to avoid stifling growth. In that scenario, it might raise rates only twice in 2019 and then retreat to the sidelines to see how the economy fares.
Compounding the effects of the tariffs and retaliatory tariffs resulting from Trump’s trade war, other factors could slow growth next year. The benefits of tax cuts that took effect this year, along with increased government spending, for example, are widely expected to fade.
Douglas Gillison of AFP reported that new members of the Federal Open Market Committee in 2019 may turn the Fed more hawkish:
Meanwhile, some policymakers who in January will take a turn as voting members of the rate-setting Federal Open Market Committee also have begun to send more hawkish signals.
Boston Fed President Eric Rosengren, who favored the Fed’s near-zero rate policy of in the years after the financial crisis, like Brainard has said in recent interviews FOMC estimates of neutral could go up.
He also noted that very low unemployment rates of the kind the United States is currently experiencing are historical harbingers of recession.
And even the Chicago Fed’s Charles Evans, a longtime dove who will rotate onto the FOMC in 2019, has suggested monetary policy may need to become “restrictive.”
Mark Hamrick of Bankrate.com reported that consumers see some benefits from a rate hike:
Here are positive outcomes from Fed rate increases.
1. Higher returns for savers
If you’re a saver, low interest rates have brought about the financial equivalent of a long drought. Any improvement, even modest, is welcome and overdue.
“Interest rates have been so low for so long that many people have fallen out of the habit of rate shopping,” says Robert Frick, corporate economist for Navy Federal Credit Union. “But now that rates are rising they should get back into the habit and will be seeing bigger payouts from their accounts, especially certificates of deposit. This is especially important for people on fixed incomes.”
2. Tamed inflation
Most broad-based measures of prices indicate inflation has continued to remain under control in the U.S. in recent years. The central bank’s target for inflation is 2 percent, but inflation has yet to hit the bull’s-eye on a sustained basis.
