Monetary Policy & the Next Chair of the Federal Reserve
On October 31 and November 1, the Federal Open Market Committee (FOMC) of the Federal Reserve held its second-to-last meeting of the year, the last one scheduled for mid-December. At this meeting, the FOMC decided to maintain the target range for the federal funds interest rate at its current level between 1.0% and 1.25%. However, as the macroeconomic conditions of the country ameliorate progressively, an interest target range increase is expected during the meeting in December and throughout 2018. According to the Federal Reserve Chair Janet Yellen and the FOMC, as of November 1, the national unemployment rate continued its overall downward trajectory, in spite of the important jobs losses provoked by natural disasters during the recent hurricane season. Likewise, consumption in the form of household spending and investment from the private business sector continue to expand moderately. Nevertheless, one key benchmark that has remained elusive throughout Chair Yellen’s tenure is the 2.0% target inflation rate. Once again, even with a slight increase in oil and gas prices due to major hurricanes, the recorded levels of inflation for recent weeks remain well below the 2.0% target. Furthermore, the Federal Reserve and Chair Yellen do not expect the national inflation rate to hit its 2.0% for at least another twelve months. The prevailing weak levels of inflation are partly responsible for the FOMC’s hesitation to raise the target range of the federal funds interest rate more rapidly.
Meanwhile, on Thursday, November 2, Republicans from the House of Representatives and President Trump presented the outline for the new tax code proposal, whose prospect has created economic optimism nationally and whose future will determine the economic outlook for years to come. Additionally, also on November 2, President Trump made a major announcement by appointing current Federal Reserve Governor Jerome Powell as Chair Yellen’s successor, when her four-year term ends in February of 2018. Currently, Governor Powell’s nomination is just pending confirmation by the United States Senate, which should not present any major difficulties. Governor Powell is a lawyer with extensive experience in both the private and the public sector. Similarly, his nomination represents both economic stability and policy continuity for the Federal Reserve, the national economy, and international markets.
Monetary Policy & the Next Chair of the Federal Reserve
On the other side of the Atlantic Ocean, the Bank of England’s Monetary Policy Committee (MPC) met on November 1 and raised its target interest rate from 0.25% to 0.5%. This is the first time that the Bank of England has raised the United Kingdom benchmark interest rate since 2007, before the global financial crisis. The decision to raise interest rates in the UK can be mainly attributed to the economic repercussions of the Brexit vote last year and the ongoing negotiation with the European Union. Even though the uncertainty provoked by the Brexit negotiations has had negative effects on the economy of the UK, such as currency devaluation and companies moving their offices towards other European countries, other indications, such as British exports, are faring more favorably.