U.S. Economy: The Fed and Interest Rates

unnamedunnamed-1The Federal Reserve is expressing interest in raising interest rates in their meeting in March by 25bps. Although analysts predict that raising interest rates have a 25% chance of happening, a few members of the FOMC still continue talk about the benefits of raising rates.

Inflation continues to be on target (2%), and the strengthening dollar dampens the effect of inflation (however, Trump wants to devalue the dollar because it’s “too strong”). The unemployment rate (4.8%) surpassed expectations of the estimated maximum employment level (5.6%). Given our economy is within its healthy parameters, some FOMC members still want to be in front of the curve instead of behind it. Here we see the battle between the doves and the hawks.

Very few FOMC members discuss the Central Bank’s accommodation monetary policy, which grew tighter from the 2008 Recession.

Federal Reserve Vice Chairman Stanley Fischer said the case for removing accommodation is “quite strong” while interest rates are at a level that is lower than normal in our current business cycle. This is to prevent the distortions of having accommodations with low interest rates.

Federal Reserve Chairman Janet Yellen stated that there will be about 3 interest rate increases in 2017.

The FOMC members also are going to discuss the U.S. balance sheet which is long overdue.

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