Fed Signals Third Rate Increase Of Trump’s Presidency

REUTERS/Joshua Roberts

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Robert Donachie Capitol Hill and Health Care Reporter
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Federal Reserve Bank officials are likely to debate the timeline of a third increase in the federal funds rate at the June 13 and 14 meeting of the Federal Open Market Committee (FOMC) in Washington, D.C.

Fed officials are reportedly looking to increase short-term interest rates at the June meeting, and announce a plan to roll back its $4.5 trillion portfolio of bonds and other assets in 2017, The Wall Street Journal reports. The economists reached a consensus on the roll back during the May FOMC meeting.

The decision is important in that it allows Fed economists to focus their efforts on the timing of their third promised increase in the federal funds rate.

The federal funds rate is the overnight rate on loans between banks, and it’s the single most influential interest rate in the U.S. economy, as it has widespread effects on domestic monetary and financial conditions. The benchmark interest rate bears on employment, economic growth, and inflation.

Fed officials signaled for months their plans to increase the federal funds rate for a third time in September 2017, but are now concerned that Congress and the White House will have trouble reaching an agreement over the federal debt limit. The president called in early May, amid preliminary budget talks between lawmakers and the administration, for a “good ‘shutdown’ in September.”

Treasury Secretary Steve Mnuchin took preventative measures in March to avoid reaching the federal debt limit, taking quick action to save cash and limit federal borrowing. The treasury employed what it coined “extraordinary measures” to keep the nation from “defaulting on its obligations as Congress deliberated on its obligations.”

The debt limit debate has some Fed officials thinking an increase in the federal funds rate should get pushed back till after September 30–the date the government will shutdown without further appropriations from members of Congress. It also has officials considering pushing the portfolio rollback as early as September.

Federal Reserve Chair Janet Yellen announced the first increase in the benchmark interest rate in December, and the second three months later at the March meeting of the FOMC. (RELATED: Fed Raises Rates For Second Time Of Trump’s Presidency)

If inflation remains low and the labor market continues to show signs of strength, the Fed is likely to raise the federal funds rate in September. Its chief policy goal is to promote maximum, stable employment and keep inflation around 2 percent.

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