The Federal Reserve and Macroeconomics in the United States
Over March 20 and 21, the Federal Reserve’s Federal Open Market Committee (FOMC) celebrated its second meeting of 2018. This was also the first meeting chaired by the recently confirmed Chairman of the Federal Reserve, Jerome Powell, who will serve for at least four years. A lawyer from Georgetown University, Mr. Powell has served as a member of the Federal Reserve Board of Governors since 2012. Moreover, he represents continuity as it relates to the monetary policy of the previous Chair Janet Yellen. During his first press conference as Chair on Wednesday, March 21, Mr. Powell outlined a positive macroeconomic outlook for the United States with inflation increasingly closer to the FOMC’s long-run target of 2.0%. Furthermore, an average of 240.000 jobs were added monthly to the national economy throughout the last three months, which puts the national unemployment rate at 4.1% with a simultaneously increasing labor participation rate.
The Federal Reserve and Macroeconomics in the United States
Therefore, the FOMC decided to raise the target of the Federal Funds rate by 0.25% to a range between 1.5% and 1.75%. This upward trend is expected to continue, with the Federal Funds target rate hitting 2.1% by the end of 2018, 2.9% by the end of 2019, and 3.1% by the end of 2020. Moreover, Mr. Powell declared that the FOMC expects the Real Gross Domestic Product growth (inflation adjusted, GDP) of the United States to be 2.7% in 2018, 2.4% during 2019, and 2.0% in 2020. Meanwhile, the estimates for unemployment is that it will decrease below 4.0% during 2019 and 2020, before stabilizing at around 4.0% in the long-run. In the case of the stock market, the Dow Jones Industrial Average (DJIA) has continued to grow, from 20.660 points on March 22, 2017 to 22.350 points on September 22, 2017 and 24.682 points on March 21, 2018. However, there has also been a visible slowdown in the growth rate of the stock market in recent months.
This positive outlook is also favored by the prevailing low international oil prices. This in spite of the fact that international prices have increased slightly from an average of US$52 per crude oil barrel (WTI) between March and September 2017 to approximately US$61 during March 2018. Nevertheless, macroeconomic outlooks and projections always need to be analyzed with precaution given that they are subject to a multitude of internal and external variables. For instance, it is still unclear what the long-term economic effects of the recently approved tax reform legislation will be. Likewise, the federal government has still not approved a complete budget for the upcoming fiscal year and the newly imposed tariffs on metallic imports will certainly affect various sectors of the national economy.
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