The Federal Reserve has released its economic forecast for 2018. The central banking system is expecting gains in household spending, employment, and capital investment. The economic growth is also expected to rise at a moderate pace with the labor market remaining strong for the rest of the year. However, inflation will rise. The Federal Reserve says that inflation will move up on a 12-month basis but it will eventually stabilize. The bank is looking at a 2% rise.
These latest figures came after a two-day policy meeting. This was also the last policy meeting under current Fed Chair Janet Yellen. Jerome Powell is expected to take over from the 71-year-old on February 3rd. Powell was nominated by Trump and confirmed by the Senate. The rate-setting committee at the Federal Reserve also endorsed his appointment. Before his new appointment, Powell sat on the Federal Reserve board. He is said to be a close associate of Janet Yellen and many expect he will follow the same policies that his predecessors did.
Policymakers at the central bank are quite impressed by the progress of the US economy in the recent months. There has been a steady growth and unemployment is now at a 17-year low of only 4.1%. The bank noted though that its projection for three more interest rates hikes in 2018 that was released in December is still on course. The target range for the federal funds rate is expected to be between 1.25 and 1.5%.
This announcement closes the door on hopes that perhaps the rate hikes this year could be revised to two. Besides, the Federal Reserve also said that further interest rate hikes could be warranted this year. This could see the three earlier expected hikes go to four during the course of the year. All this though will depend on the inflation and how it picks up over the course of the year. Inflation has remained below the target threshold for quite some time now despite the steady job growth.
It’s not clear whether this will change soon or not. However, the central bank noted that market-based measures of inflation had increased in the recent months. The recently passed tax bill could also have significant effects on the economy. Policymakers at the central bank are looking at these changes as important tools for driving up economic growth and boosting household spending in the near future. Growth in 2017 was recorded at 2.3%. This moderate growth is also expected to continue in 2018.
Stock markets responded relatively well to the report from the Federal Reserve. There were no major incidents to report in the financial markets after the announcement. The U.S. financial markets have been on the rise lately. Tax cuts resulting from the recently passed GOP bill are expected to boost corporate earnings. Investors see this as an important driver of growth in the stock markets and they are hoping that these tax reforms will soon start to reflect on the market.