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Faster Growth a Welcome Headache for the Fed

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It’s a challenge Federal Reserve officials haven’t talked about in years: The economy could start to run faster than they anticipate, forcing them to raise rates at a quicker pace.

Minutes from their Dec. 13-14 policy meeting released Wednesday in Washington showed U.S. central bankers preparing for a labor market that could stage a “sizable undershooting” of the jobless level that keeps prices stable in the longer run. That may push them to “raise the federal funds rate more quickly than currently anticipated” to keep inflation in check.

The long shadow stalking the committee’s faster growth scenario is that of President-elect Donald Trump and his tax reform and fiscal stimulus proposals, although he was never mentioned in the minutes by name. 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,” according to the minutes.

Bloomberg

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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