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The Fed and the Trump Administration are in an Economic Race

(CitizensOutpost) In a bid to spark market inflation, the Federal Reserve may be accelerating its efforts to increase interest rates:

On Wednesday, the U.S. central bank is almost universally expected to raise its benchmark interest rates, a move that just a few weeks ago was viewed by the markets as unlikely.

And with inflation showing signs of perking up, Fed policymakers may signal there could be more than the three rate rises they have forecast for this year.

Apparently there is less time to react to market conditions as policymakers are keen on achieving the goal of full employment and a 2% inflation rate.  The economy seems to be reaching those goals quicker than the Fed anticipated which is leading them to forecast a rate hike:

The jobless rate, at 4.7 percent, is below what policymakers see as the long-run norm, and inflation, at 1.7 percent, is already in the range they had expected by year end.

The return of inflation has been on the Fed’s radar for a while.  This will be the second time within three months that rates will be raised.  There are signs of inflation occurring globally, although the U.S. dollar is pushing down less than other countries.  The primary indicator of inflation used by the Fed is the PCE price index which recorded its largest monthly increase in five years in January and was up 1.7% compare to the prior year.

Inflation in the euro zone jumped to a four-year high of 2.0 percent in January, above the European Central Bank’s target rate of just below 2 percent.

Oil prices have also moved higher, with the price of Brent crude oil [LC0c1] up about 30 percent from January 2016.

The 5-year forward inflation expectation rate, a market gauge tracked by the Fed, currently stands at 2.14 percent, up from 1.60 percent one year ago.

Given all this data, some question whether slowing the recent market gains is a good idea.  Since President Trump has taken over, there have been significant and record breaking stock market gains that have shown an overall economic boom.  However, accelerating rate hikes could stifle the economic growth prematurely and send the economy into a tailspin.  One such analyst, Michael Snyder, thinks the rising rates would be more detrimental than anything:

When interest rates rise, borrowing money becomes more expensive and economic activity slows down.

For the Federal Reserve to raise interest rates right now is absolutely insane.  According to the Federal Reserve Bank of Atlanta’s most recent projection, GDP growth for the first quarter of 2017 is supposed to be an anemic 1.2 percent.  Personally, it wouldn’t surprise me at all if we actually ended up with a negative number for the first quarter.

Of course stock investors do not like rising rates at all either.  Stocks tend to rise in low rate environments such as we have had for the past several years, and they tend to fall in high rate environments.

And according to CNBC, a “coming stock market correction” could be just around the corner…

It’s becoming a race between the Trump administration trying to boom the economy through job increases, lowering taxes and deregulating, while at the same time the Fed is steering the interest rates.  We will see which economic stimuli will win out.

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