Faster Growth a Welcome Headache for the Fed

It’s a challenge Federal Reserve officials haven’t talked about in years: The economy could start to run faster than they anticipate, forcing them to raise rates at a quicker pace.

Minutes from their Dec. 13-14 policy meeting released Wednesday in Washington showed U.S. central bankers preparing for a labor market that could stage a “sizable undershooting” of the jobless level that keeps prices stable in the longer run. That may push them to “raise the federal funds rate more quickly than currently anticipated” to keep inflation in check.

The long shadow stalking the committee’s faster growth scenario is that of President-elect Donald Trump and his tax reform and fiscal stimulus proposals, although he was never mentioned in the minutes by name. Almost all the participants “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years,” according to the minutes.

Bloomberg

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MS

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.