The FOMC (Federal Open Market Committee) December meeting minutes were realised last night and the inflation hawks are looking very German indeed, as teeth are gnashed on the upcoming Trump fiscal stimulus.
Does this mean an even faster pace of rate rises in 2017 as a GOP Congress spends like a drunken sailor?
From Bloomberg:
Almost all the participants “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years,” read the minutes of the Dec. 13-14 meeting of the Federal Open Market Committee, released Wednesday in Washington.
Despite growing attention to the risks of increased government spending and tax cuts spurring faster growth than currently forecast, most on the committee reiterated that a “gradual” pace of rate hikes over the coming years would likely remain appropriate.
Interest rate futures are still only indicating the next rate rise to come in June after the 0.25% in December, but concerns are mounting slightly on unemployment. This is warranted given most of the benefits of any fiscal stimulus will go to high income earners/asset owners, not the middle class.
More:
“Participants emphasized their considerable uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives as well as about how those policies might affect aggregate demand and supply,” the minutes said.
“Many participants” judged the risks of a sizable undershoot on unemployment had increased somewhat, according to the minutes, “and that the committee might need to raise the federal funds rate more quickly than currently anticipated.” Still, “most participants” expected the jobless rate would fall only “modestly below their estimates of the longer-run normal rate.”
The minutes showed that “about half” of the committee members had begun to incorporate assumptions about expansionary fiscal policy into their forecasts.
Underlying inflation is rising, with the 2% goal excluding food and energy on track as well:
source: tradingeconomics.com
While official unemployment is trending down:
source: tradingeconomics.com
Its wage growth that will be key to capping any large interest rate rises, as it weakens towards the end of the Obama presidency:
source: tradingeconomics.com