The US Federal reserve proceeds to fifth interest rate increase since financial crisis and last one decided under direction of Janet Yellen at head of central bank. The rise is a quarter of a point, which leaves price of money in that country in a band between 1.25% and 1.5%. The Central bank also reaffirms its plan to move forward with gradual reduction of debt assets it has in balance.Learn More
- Jerome Powell will be president of Federal Reserve, most powerful central bank in world
- Yellen calls on Congress to support growth
- Solid job creation in US gives rise to higher rates
- Changes in ranks of large central banks condition economic policy
The Fed plans a new meeting at end of January, just three days after Governor Jerome Powell takes over. The two-day meeting that concluded this Wednesday was, however, last one in which Janet Yellen had planned a public appearance to explain reasons why he decides to tread a little stronger brake of stimuli with inflation and wages Advancing shyly.
Yellen's four-year mandate was characterized by his desire to leave rates as low as possible, as long as possible, to support an economy that grew below potential and in hope of giving a boost to labor participation. But he also understood that laxity had risks if it was maintained too long and that's why normalization process was activated two years ago.
The last time interest rates were 1.5% was in October 2008. That month, price of money was twice lowered, in response to collapse of Lehman Brors. The process of withdrawal of monetary stimuli started in December 2015 under baton of Yellen, with a first increase of a four of point. He spent a full year before taking second step.
There were two dissidents in vote. It is third rate hike that is decided in 2017 and internal survey indicates that members see possible three increments more in 2018. It is a progression that, in any case, is in air. Although Powell asserts that he is willing to give continuity to strategy of gradual withdrawal of stimuli, flexibility is given to adjust pace to economy's march.Tax reform
In this sense, it will be decisive impact that application of fiscal reform may have, which is expected to be adopted in Congress before Christmas. The tax breaks that plan provides to companies and people will give an additional boost to economy, which in last two quarters grew by about 3%. The labor market is progressing solidly. But it will also raise deficit.
The new projection of Federal Reserve anticipates a growth of 2.5% next year, four tenths better than anticipated three months ago and in line with what was planned for 2017. Unemployment will fall to 3.9% next year. Yellen reiterates that at this time re are no signs indicating a reheating of economy.
Low inflation is currently main headache for large central banks. Prices went up four tenths in November. The annual rate is 2.2%. The expansion and a job market in full employment situation are not, however, giving expected impulse. Discounting energy and food, underlying is 1.7%, its lowest level in three years.
Personal-spending inflation has been five and a half years below 2% benchmark level. There are members of Federal reserve that fear that factors that keep inflation down are permanent, because of combined effect of phenomenon of globalization and electronic commerce. It is seen in falling prices in components such as clothing, largest since 1998.New Fed
The composition of Fed will also be very different, because re are several positions of governor in process of change. One of m will be Janet Yellen, who, when she leaves presidency in less than two months, also gives up her seat on committee. These vacancies allow President Donald Trump to put figures that are more in line with his economic vision and favorable to financial deregulation.
Both Yellen and Powell make it clear that long term neutral type is lower than in previous expansive cycle. Now y see m in 3% environment, compared to 5.25% in June 2016. The same goes for balance, which will reduce us so much. The Fed accumulated before crisis finances assets worth less than trillion dollars. From re he climbed to 4.5 trillion. The idea is to stay in two trillion.
Janet Yellen refore leaves Fed with monetary policy well channeled, with economic growth gaining body, low unemployment, without inflationary risks or threats to financial system. That is legacy that first woman who presided over most powerful central bank in world leaves Jerome Powell, who will have to figure out when a change of scenery can take place to adapt strategy.