jueves, 22 de marzo de 2018

jueves, marzo 22, 2018

Sorry, But The Fed Will Be Safe Not Sorry

The Federal Reserve isn’t ready to adopt the idea the economy can run faster without running hotter

By Justin Lahart

     Chairman Jerome Powell and the rest of the Federal Reserve said the outlook for the U.S. economy has strengthened in recent months. Photo: Alex Wong/Getty Images 


It is possible that, even as tax cuts and government spending boost growth and spur hiring, the risk of the economy overheating hasn’t increased. Maybe, but the Federal Reserve probably isn’t about to embrace that idea.

Fed policy makers on Wednesday raised their range on overnight rates by a quarter point, to 1.5%-1.75%, and acknowledged that the outlook for the economy “has strengthened in recent months.” New economic projections showed their median expectation was for gross domestic product to grow by 2.7% this year and for the unemployment rate to slip by the end of the year to 3.8% from the current 4.1%. In December, they had forecast GDP growth of 2.5% and an unemployment rate of 3.9%.


HOW LOW CAN IT GO
The unemployment rate



Source: Labor Department


One thing that didn’t change was the median forecast of how many times the Fed will raise rates this year—three. But that view on rates really amounted to a split decision because seven of 15 policy makers expect to raise rates at least four times this year. In December, only four of 16 expected four or more increases.

What is more, the policy makers think they will have to tighten by more in the years to come, projecting that overnight rates will reach 3.375% by the end of 2020, compared with their earlier forecast of 3.125%. That reflects an expectation that the unemployment rate will slip to 3.6% by the end of next year and that inflation will breach the Fed’s 2% target.

The Fed’s view doesn’t jibe with the recent hopes and dreams of some investors. The February jobs report, which showed the unemployment rate stable at 4.1% even as hiring heated up, suggested there might still be a large number of potential workers who could yet enter the labor force. If that is true, the upward pressures on wages in the months to come might not be so severe. The Labor Department’s February report on consumer prices further damped inflation worries.

But for the Fed to take up the view that the job market can handle more hiring without getting tight, it would need a lot more proof than a single month’s jobs report. Likewise, the idea that the economy will become more productive as companies step up investment in response to the tax cut, and therefore able to grow faster without pushing inflation higher, might be true. But the Fed would need to see evidence first.

In the meantime, the central bank is going to keep raising rates.

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