WASHINGTON—The Federal Reserve expects the economy to grow somewhat faster over the next several years, but does not believe the election of Donald Trump as president will lead to a boom, according to documents released from its mid-December meeting.
Tamping down the growth somewhat will be plans by the Fed to raise interest rates if the economy shows signs of overheating, minutes from the Fed meeting show. The Fed indicated it will raise rates three times in 2017.
However, the meeting minutes also show that the Fed will raise rates more often than that if they need to. But that forecast also comes with some caveats, with the minutes noting “uncertainty regarding fiscal and other economic policies” have created “greater uncertainty about (Trump administration) policies (that make) it more challenging to communicate to the public about the likely path of the Federal funds rate.”
The Fed funds benchmark rate currently sits in a range from 0.5% to 0.75%, which is a very low level historically.
Looking ahead toward economic growth, the Fed said it expects Trump and congressional Republicans will cut taxes while also increasing federal spending in some areas. But that will be “substantially counterbalanced” by higher interest rates and a stronger dollar, which will reduce exports of American goods and services,” the Fed noted in its minutes.
“Participants emphasized their uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives as well as about how those policies might affect aggregate demand and supply,” according to the minutes.