Fed Policy Course: middle of the road?
As expected, the Fed announced another quarter point interest rate hike. Fed guidance for further rate increases was also as expected: four more over the next year (one at the end of this year and three more next year), plus one additional hike in 2020. Fed expectations for GDP growth are non-negative (meaning no recession) for the next three to four years, with GDP growth projections of 3.1 for 2018, 2.5 for 2019, 2.0 in 2020, and 1.8 in 2021.
Furthermore, inflation is expected to remain contained, as the Fed forecast inflation to remain at or near its 2% target for the next three years. The Fed predicts that unemployment will continue to come down, and reach a level of 3.5% next year, where it will remain for the next three years (through 2020). This Goldilocks economy of growth with no inflation, unprecedented low unemployment, and “balanced” risks, puts the Fed on a steady-as-she-goes, middle of the road policy path.
It all sounds so good, and leaves readers feeling warm and fuzzy. That moment of bliss is then interrupted by reality, when one considers that the policy statement ignores current global economic conditions of tariff hikes and trade wars, and the potential inflationary effects of tariffs, wage growth, and global resource competition. Don’t they realize that this is the end of the current economic cycle, and that what they see on the edge of the horizon is not a sunrise, but a sunset?
Of course, they do. They just can’t say so.