Wednesday, December 14, 2016

Anti-Trump Yellen Started Raising Interest Rate

WASHINGTON (AP) — The Federal Reserve has raised a key interest rate in response to a solid U.S. economy and expectations of higher inflation, and it foresees three rate hikes in 2017. The Fed’s action Wednesday will mean modestly higher rates on some loans.

The central bank announced after its latest policy meeting that it’s increasing its benchmark rate by a modest quarter-point to a still-low range of 0.5 percent to 0.75 percent. The Fed last raised the rate in December 2015 from a record low near zero set during the 2008 financial crisis.

The Fed’s move, only the second rate hike in the past decade, came on a unanimous 10-0 vote. It also released an updated economic forecast that showed modest changes to its outlook for economic growth, unemployment and inflation, mainly to take account of stronger growth and a drop in the unemployment rate for November to a nine-year low of 4.6 percent.

Its new projection has the unemployment rate dipping to 4.5 percent by the end of 2017 and remaining at that level in 2018. The Fed foresees economic growth reaching 1.9 percent this year, slightly above its forecast in September, and 2.1 percent in 2017. That’s slightly more optimistic than it projected in September.

The Fed kept its long-term estimate for economic growth at 1.8 percent, far below the 4 percent pace that President-elect Donald Trump has said he can achieve with his program of deregulation, tax cuts and increased spending on infrastructure.

The Fed’s estimate that it will raise rates three more times in 2017 is up from an estimate of two increases at the September meeting. Its policy statement showed only modest changes in wording from the previous meeting. It said “economic activity has been expanding at a moderate pace since mid-year” helped along by solid job growth.

Trump’s plans for tax cuts and infrastructure spending have led investors to expect that inflation will pick up in coming months. The economy, after growing at an anemic annual rate of 1.1 percent in the first half of this year, accelerated to a 3.2 percent pace in the July-September quarter. That pickup has lifted hopes that the economy will keep rising, fueled by steady hiring gains.

In the month since Trump’s victory, investors have sent stock prices surging to record highs and driven up bond yields. The markets have calculated that Republican control of Congress will enable Trump to cut taxes, ease regulations and accelerate infrastructure spending — and that higher economic growth, inflation and corporate profits will result.

The Fed’s action Wednesday should have little effect on mortgages or auto and student loans. The Fed doesn’t directly affect those rates, at least not in the short run. But rates on some other loans — notably credit cards, home equity loans and adjustable-rate mortgages — will likely rise soon, though only modestly. Those rates are based on benchmarks like banks’ prime rate, which moves in tandem with the Fed’s key rate.

Mortgage rates have been surging since Trump’s election victory last month on expectations that his economic program will accelerate economic growth and inflation. Some Fed watchers expect faster growth to lead the central bank to shift its focus from trying to energize the economy to considering ways to counter the risk of too-high inflation. On that assumption, some are revising their forecasts for Fed rate hikes in 2017.

Before Trump’s victory, the consensus view of economists was for two Fed rate increases next year. Now, some say they foresee three or possibly as many as four. Others think the Fed will be hesitant to step up the pace of rate hikes. For one thing, Trump’s economic program still must win congressional approval and could undergo significant change along the way.

Last month after Trump’s election, Fed Chair Janet Yellen told a congressional committee that Fed officials would be monitoring Congress’ actions and “updating our economic outlook as the policy landscape becomes clearer.” Other Fed officials have endorsed that wait-and-see approach.

Federal Reserve chair Janet Yellen has hit back at President-elect Donald Trump, indicating she will serve out her full term until 2018, in a rebuke to Mr Trump's comments on the campaign trail he would be inclined to replace her. Mr Trump has been scathing of Dr Yellen and the Federal Reserve, calling her "highly political" while also questioning the Fed's independence.

This prompted speculation he might try to pressure her into stepping down early. His advisers said it was not his intention but suggested Mr Trump would not reappoint her, according to Bloomberg.

"I was confirmed by the Senate to a four-year term, which ends at the end of January 2018, and it is fully my intention to serve out that term," Dr Yellen told Congress' Joint Economic Committee overnight. Mr Trump had previously commented he would back efforts to diminish the Federal Reserve's power and allow congressional audits.

"She is not a Republican. When her time is up, I would most likely replace her because of the fact that I think it would be appropriate," he told CNBC in May.

In apparent criss-crossing in his views of interest rates, he has indicated low interest rates are a "tremendous problem for the country" but said he was "for low interest rates, and I think we keep them low, and we have to compete".

"She is not raising rates for a very specific reason, because [President Barack] Obama told her not to, because he wants to be playing golf in a year from now ... and he doesn't want to see a big bubble burst during his administration," he said last November.

Rate rise 'relatively soon'

Dr Yellen in her testimony said the central bank would adjust its outlook as required, indicating that a rate increase could well become "appropriate relatively soon".

"The evidence we've seen since we met in November is consistent with our expectation of strengthening growth and an improving labour market," she said. "I do think the economy is making very good progress toward our goals."

Mr Trump's new administration is setting out plans for potentially hundreds of trillions of dollars in tax cuts and infrastructure spending.

Dr Yellen started her tenure in February 2014 under the Obama administration for a four-year term. She is the first woman to head the Federal Reserve.

(Blogger’s note: Socialist Yellen’s Federal Reserve has kept US interest rates extremely low during all Obama years to stimulate the US economy and now suddenly – even well before Trump inauguration – she sees high inflation coming and started delivering massive rate hike just to spite Trump and crush the economic growth expected in coming Trump years. Trump should fire her immediately.)

Related posts at following links:
Money Printing, Stagflation, and Civil-War At Yellen's Federal Reserve.
US Humongous Debt, Commie China, and Printing Money.