Federal Reserve raises the interest rate again in mid-2018 in response to 2% inflation and wage growth.

John Fourier

2018-07-09 09:39:00 Mon ET

The Federal Reserve raises the interest rate again in mid-2018 in response to 2% inflation and wage growth. The current neutral interest rate hike neither boosts nor constrains inflationary pressure. FOMC minutes reveal some members' concerns about whether the Trump tariffs would dampen robust macroeconomic momentum and full employment. When western allies such as Canada, Europe, and Mexico lash back with retaliatory steel and aluminum tariffs, this ripple effect may weaken 2.7%-3% U.S. economic growth and production. Both capital equipment and risky asset investments may deteriorate in light of international trade frictions.

Also, FOMC members express their concern about potential yield curve inversion that might signal the dawn of an economic recession. Whether a recession lurks around the corner remains an open controversy. While both stock market valuation and domestic demand continue to indicate investor optimism, the core term spread between short-and-long-term interest rates warns of potential output contraction.

In light of its dual mandate of price stability and maximum employment, the Federal Reserve may raise the interest rate twice in the second half of 2018. The current interest rate hike may continue above the neutral threshold sometime in mid-2019.

On balance, the recent Fed Chair transition from Yellen to Powell reflects the fact that the medium-term monetary policy stance has shifted from dovish to hawkish. A dovish monetary policy stance focuses on attaining full employment, whereas, a hawkish stance emphasizes inflation containment.

This monetary policy transition is a major inflection point that shines fresh light on the inexorable and mysterious New Keynesian trade-off between price stability and employment.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

U.S. trading partners such as the European Union, Canada, China, Japan, Mexico, and Russia voice their concern at the WTO.

James Campbell

2018-07-05 13:40:00 Thursday ET

U.S. trading partners such as the European Union, Canada, China, Japan, Mexico, and Russia voice their concern at the WTO.

U.S. trading partners such as the European Union, Canada, China, Japan, Mexico, and Russia voice their concern at the World Trade Organization (WTO) in ligh

+See More

Is Bitcoin a legitimate (crypto)currency or a new bubble waiting to implode?

Monica McNeil

2017-11-24 08:41:00 Friday ET

Is Bitcoin a legitimate (crypto)currency or a new bubble waiting to implode?

Is Bitcoin a legitimate (crypto)currency or a new bubble waiting to implode? As its prices skyrocket, bankers, pundits, and investors increasingly take side

+See More

Tech titans from Apple and Amazon to Microsoft and Google can benefit from the G.O.P. tax reform.

James Campbell

2017-12-07 08:31:00 Thursday ET

Tech titans from Apple and Amazon to Microsoft and Google can benefit from the G.O.P. tax reform.

Large multinational tech firms such as Facebook, Apple, Microsoft, Google, and Amazon can benefit much from the G.O.P. tax reform. A recent stock research r

+See More

Warren Buffett shares his fresh economic insights and value investment strategies at the Berkshire Hathaway shareholder forum.

Daphne Basel

2018-05-05 07:33:00 Saturday ET

Warren Buffett shares his fresh economic insights and value investment strategies at the Berkshire Hathaway shareholder forum.

Warren Buffett shares his fresh economic insights and value investment strategies at the Berkshire Hathaway shareholder forum in May 2018 despite the new GA

+See More

Treasury Secretary Steven Mnuchin welcomes a weak U.S. dollar amid pervasive fears of an open trade war between America and China.

James Campbell

2018-01-15 07:35:00 Monday ET

Treasury Secretary Steven Mnuchin welcomes a weak U.S. dollar amid pervasive fears of an open trade war between America and China.

Treasury Secretary Steven Mnuchin welcomes a weak U.S. dollar amid pervasive fears of an open trade war between America and China. At the World Economic For

+See More

CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.

James Campbell

2019-04-07 13:39:00 Sunday ET

CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.

CNBC news anchor Becky Quick interviews Warren Buffett in early-2019. Buffett explains the fact that book value fluctuations are a metric that has lost rele

+See More