With rate hike in the bag, Fed may hint at Trump effect on economy

It is expected that the Federal Reserve will raise interest rates on Wednesday, but, more importantly, it can give its strongest clue on how the tax revision of the federal government. Trump administration could affect the US economy.

Investors will pay close attention to how the central bank is seeking to balance an economic stimulus fueled by the recovery with low inflation and the tepid growth in wages that have held back the appetite of policymakers for higher rates.

The Fed's policy statement and its latest economic projections are expected to be released at 2 pm EST (1900 GMT) after the end of a two-day meeting. Fed President Janet Yellen is scheduled to hold a press conference half an hour later. This will be his last before his four year term ends early next year.

His successor, Fed Governor Jerome Powell, said in a recent confirmation hearing before a Senate committee that he had "no sense of an economy" overheating, "an early signal that he may not want to speed up the pace. evidence of accelerated wage growth and inflation.

The Fed raised rates twice in 2017 and is currently planning three new hikes next year.

Much of Yellen's tenure as head of the Fed was defined by the desire to leave monetary policy in place as long as possible in the hope that unemployment would continue to fall, workers would be reinstated the work market.

Powell, who worked closely with Yellen, said he thought this process still had room.

Recent bullish data, highlighted by solid gains in ongoing employment and a surge in economic growth, prompted some analysts to speculate that the central bank's new projections will reflect an anticipated four-year hike. rate next year.

There are also signs that inflation could firm up after a long period of weakness. Fed policymakers were prevented from seeing how the price hike remained steadily lower than the central bank's 2% target, despite the strength of the labor market and a growing economy.

The tax plan proposed by President Donald Trump, including a sharp reduction in corporate income tax, could further stimulate the US economy when it passes Congress controlled by Republicans as seems likely.

In a recent note providing for four Fed rate increases next year, Paul Ashworth, US economist for Capital Economics, said that "the stimulus could provide coverage for the Fed to normalize rates of interest." Interest at a faster pace "

What Ashworth called a "poorly calculated" tax cut should increase inflation as much as boost real GDP growth, "he said.

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