Tags: fed | balance | inflation | growth | economic

Fed Struggling to Maintain Delicate Economic 'Balance'

Fed Struggling to Maintain Delicate Economic 'Balance'
(Dollar Photo Club)

Wednesday, 13 December 2017 08:47 AM Current | Bio | Archive

Republican Roy Moore has lost the Senate race in Alabama. Moore has not yet conceded, but President Donald Trump has tweeted on the matter, so the matter should now be regarded as closed.

Moore’s defeat does raise some questions about tax cuts and the legislative program as it takes the Republican majority in the Senate to one vote.

However, this is effectively a two-vote majority as Vice President Mike Pence ultimately has a vote and will presumably spend a lot of time in Washington in the near future.

I still think that some kind of a tax package will pass. Democrat Senator-elect Doug Jones does not take office until the new year, which keeps the current majority intact for the time being.

However, the ability of individual senators to demand their own special concessions has perhaps been enhanced.

Economically, the United States offers today consumer price inflation (CPI) data and the Federal Reserve meeting in one day.

Life, from an economic standpoint of course, can’t get more exciting than this.

The inflation data is not going to do anything to the Fed’s decision-making process right now, but the question is whether the risks to inflation lie to the upside or not next year. In all probability they do lie a little to the upside. The Federal Reserve is expected to raise rates 0.25 percent today.

Almost every single economist in the financial markets expects this and how could so many economists possibly be wrong?

The more interesting question is “policy” in 2018. With what we know so far, I still expect two or three rate increases from the Fed in 2018.

The point is that the Fed is trying to maintain a balance. It is not trying to weaken growth and it is not trying to lower inflation. It also isn't trying to destroy pricing power.

However, raising interest rates will be necessary to maintain balance in the face of moderately increased inflation pressures.

Investors should take notice that the United States will not publish wage data in any shape or form today together with the consumer price inflation data. It will be publishing average hourly earnings data, but this has nothing to do with wages.

About the Brexit saga, there is noise about the UK leaving the European Union (EU), but sadly the deal to “Break the deadline of deadlines” is never going to end all that noise around this topic.       

Finally, about cryptocurrencies, the Australians who know a thing or two about mining have given their comments on cryptocurrencies. The Reserve Bank of Australia is not a fan of cryptocurrencies.

The South Koreans have confirmed that they do not intend to ban bitcoin. They are, however looking to increase regulation on trading exchanges for cryptocurrencies. 

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The Fed is trying to maintain a balance. It is not trying to weaken growth and it is not trying to lower inflation and it is not trying to destroy pricing power.
fed, balance, inflation, growth, economic
Wednesday, 13 December 2017 08:47 AM
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