A Fed Rate Increase Is Expected. But What Comes Next?
Economists at Goldman Sachs analyzed the Senate version of the tax cut using the Fed’s economic model and concluded
that it would add about 0.25 percentage points to economic growth for a few years, which could cause the Fed to raise rates by an additional half a percentage point above current projections.
Robust job creation in November is the latest sign of stronger economic growth, and it comes as Republicans are preparing a $1.5 trillion tax cut
that President Trump has described as economic “rocket fuel.”
The Fed is widely expected to acknowledge the strength of the economy by increasing its benchmark rate
by one quarter of a percentage point on Wednesday, after its final policy meeting of the year.
The presidents of some of the Fed’s regional reserve banks have offered their own forecasts, generally in line with the consensus among independent economists
that tax cuts would be likely to increase both economic growth and inflation by a modest amount in the short term.
Because some Fed officials think the economy is already growing at a pace
that is likely to increase inflation over time, they have said that faster growth would not be welcome.
“I’m not in favor of tax stimulus at the current time
because the economy doesn’t really need it,” William C. Dudley, president of the Federal Reserve Bank of New York, said late last month.