The recent discussion around end of January 2017 and February beginning, by the U.S. Central Bank resulted in keeping the interest rates unchanged. This is followed by a puffed-up speculation about interest rates rise coming in soon as signalled by the Fed’s minutes of meeting. This seems to be backed by the continuous improvement in economy, and jobs and inflation data eventually coming in line with or above expectations. The Fed committee has also stated that low interest rates, if maintained as such, might impact unemployment to a downside level and may result in more inflation.
The Fed particularly highlighted that near term risks to economic outlook seem to be roughly balanced now. The labor market has continued to strengthen and that economic activity is expanding at a moderate pace. Further, job gains have remained robust while the unemployment rate has remained near the recent low level. There has also been a rise in household spending while business fixed investment has remained soft. The inflation is now expected to rise to 2 per cent over the medium term. Overall, the discussion has in a way signalled for a growing confidence in the policy makers about the economic cycle coming back on track and attaining of an economic position for a tighter policy.
However, there has been some level of uncertainty prevailing at the Federal Reserve over new Trump administration’s economic program. Many Fed members still remain cautious of the policy proposals that might lead to different consequences for the economic scenario.
The Central Bank’s next meeting is due around March 14, 2017 and it will be interesting to see the move on the interest rates at the back of the economic policy proposals.
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