In spite of the predictions that the inflation will increase this year, the US Federal Reserve made no changes concerning the current interest rates. Thus, at 31st of January 2018, they will still the same. But, according to Jerome Powel, who is the chief of the central US bank, the costs connected to borrowing will continue to follow their ascending trend. In 2018, the economy is expected to rise at a steady pace while the labor market continues to be strong. These are due to the fact that the employment improved, the spending per household, and capital investments increase.
As the Feds stated recently, it is expected for the inflation to raise this year, but not exceed the 2% target set for a period of 12 months. So, even if the increase will take place, Feds also expect it to stabilize at one point as well. But this is not the only change that will happen during this period, as the committee that sets the rates selected a new chief for their bank, by his name Jerome Powel, as mentioned earlier. Powel, a former Fed governor, is going to replace Yellen, whose policies are expected to be closely followed by Powel. Yellen became famous for the policies that were meant to repair the economy affected by the recession that took place between 2007 and 2009, which was accomplished by moving interest rates from almost zero to slightly higher percentages in a gradual manner.
The policymakers of the Feds have been even more encouraged in recent times, as unemployment dropped significantly, reaching the incredible figure of 4.1%, and the economy took off in a healthy manner as well. During the past year alone, the rates were raised 3 times by the Feds, 3 more raises being scheduled for this year as well. The goal is to raise the current rates for federal funds from 1.25% to 1.5%. But, in spite of having a much stronger job market, the inflation will increase as well, together with the increase of the Feds’ rates. Thus, an acceleration of the inflation is expected to begin during this year’s spring, as the policymakers stated. Even though some factors held it down recently, the measures of inflation started to be increasingly more prominent in the past months, which paves the path for an increase in this sector.
However, no one said nothing about the impact of Trump’s administration on the matter of taxes and economic growth. But, none seemed concerned that the administration will push inflation too much either. In fact, some of the policymakers said that they expected changes in the current form of taxes, changes that are meant to provide more support to business and encourage spending per household. After all, in 2017, US recorded an economic growth of 2.3%. And things are going to continue to improve, as corporate profits are expected to increase as well, once the new tax legislation released by Trump will pass, a factor that made the US stocks reach unpreceded highs.
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