Wednesday, November 22, 2017

Federal Reserve Expected to Raise Fed Funds Interest Rate in December

There have been four hikes in the Federal Reserve Fed Funds rate since the financial crisis, starting with a first hike in December 2015.

At the time, Austrian-lites warned that the December 2015 hiked wouldn't hold that it would cause a stock market crash and a recession and that the hike would need to be reversed. It's two years later and nothing of the sort has occurred.

The stock market has been booming and there has been no recession.

As I said at the time,
it is a boom and bust cycle, and we were clearly in the boom phase at the time, and no tiny 25 basis point hike in the Fed Funds rate was going to change that.

In recent weeks, in the EPJ Daily Alert, I have turned short-term bearish on the stock market but I see no indication of an imminent recession.

All that said, it appears that the Federal Reserve at its December 12-13 FOMC monetary policy meeting will again raise the Fed Funds rate by another 25 basis points, bringing the target range to 1.25% to 1.50%.

According to the just-released minutes of the November meeting Fed, most members were “reasonably confident that the economy and inflation would evolve in coming months such that an additional firming [in the Fed Funds rate] would likely be appropriate in the near term.”

However, there were some dissenters who, using the bizarre current thinking that the Fed needs to have a target price inflation rate (See: Is Milton Friedman the Direct Cause of the Current Crazed Fed "Inflation Targeting"?),  hold the view that there should be no hike in December:
Several participants indicated that their decision about whether to increase the target range in the near term would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee's objective. A few other participants thought that additional policy firming should be deferred until incoming information confirmed that inflation was clearly on a path toward the Committee's symmetric 2 percent objective. A few participants cautioned that further increases in the target range for the federal funds rate while inflation remained persistently below 2 percent could unduly depress inflation expectations or lead the public to question the Committee's commitment to its longer-run inflation objective. 
Dissenters, there may be, but the majority, led by the Fed Chair Yellen, hold the view that the Fed should hike in December. And, thus, it shall be done.


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