US Fed to hike interest rates as Trump tax cut looms | 2017-12-11 |

US Fed to hike interest rates as Trump tax cut looms

    11 December, 2017 12:00 AM printer

WASHINGTON: The US central bank is set to raise the benchmark interest rate this week, looking to get ahead of price increases that, though absent so far, are still expected to materialize.

It would be the third rate hike this year, and is overwhelmingly expected by economists and traders, and hinted at by policymakers, even though official data show inflation remains well below the Federal Reserve's two percent target, reports AFP.

With the world's largest economy growing and near full employment -- confirmed by a strong November jobs report on Friday -- the central bank has long been expecting to see signs of inflation in the pipeline.

And now a Republican plan nearing approval in Congress to slash corporate taxes offers a potential juice to the economy that could prompt the Fed to hike rates faster, economists say.

The Fed's forecast in September indicated three rate hikes were likely next year, but any increase in anxiety over fiscal policy and its impact on inflation could be reflected in the revised projections from policymakers that will be released at this week's meeting.

Since the rate-setting Federal Open Market Committee last met six weeks ago, economic data have seen ripples of distortion from the multiple hurricanes of late summer, including rebounds in home construction and industrial output, for example.

And a key measure of consumer inflation posted its first gain in nine months in October -- though this was partly driven by the cost of hotels and lodging, which rose as people left home to flee Hurricanes Harvey and Irma.

The Fed's latest nationwide survey of the economy also contained reports of rising prices and worker pay -- just the thing the central bank watches closely.

But the underlying trends have not changed much: an economy humming along at near three percent quarterly growth, robust-but-slowing job creation and record low unemployment, accompanied by weak inflation and sluggish wage gains.

The absence of inflation has baffled Fed officials and led to a split among those who want to go slow, and those who want to hike more quickly before price increases hit the economy.

Fed governor Jerome Powell, President Donald Trump's pick to lead the central bank starting in February, testified last month that the case for a rate hike was "coming together," in an unusually strong hint about the likely move this week.