The Fed is not acting crazy, it’s just responding to new economic realities brought on by Trump

Back in September 2016, the median forecast of Fed officials pegged core inflation (taking out food and energy) at 1.9 percent for this year. That’s exactly what was printed in the second quarter. Here’s what’s changed: real gross domestic product was forecast to run at 2 percent but has averaged 3.2 percent so far this year, or a full percentage point higher than forecast. Unemployment, at 3.7 percent, is 0.7 percent lower than the Fed had forecast back then.

In response, the Fed looks likely to add just one quarter point extra rate hike than it planned two years ago, assuming it hikes in December. So, the fed funds rate will be 2.4 percent, compared to the forecast of two years ago of 2.1 percent.

  • Publisher: CNBC
  • Date: 2018-10-11T15:04:38-0400
  • Author: Author link
  • Twitter: @CNBC
  • Citation: Web link

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Many things are taking place:

Trump, Gloomy Outlook Hit Finance Chiefs in Bali: World Economy This Week

Fed Officials See Strong Economy Justifying Interest Rate Rises

WASHINGTON’The Federal Reserve has become the center of attention at the White House and on Wall Street for rising interest rates that helped knock stocks off balance this week.

Inside the central bank, however, officials see broader forces’including declining unemployment, inflation’s return to normalcy and a fast-growing economy’pushing interest rates higher.

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  • Publisher: WSJ
  • Date: 2018-10-11T20:57:00.000Z
  • Author: Nick Timiraos
  • Twitter: @WSJ
  • Citation: Web link

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Fed’s ‘glacial’ normalization not enough to cope with inflation risks: Stephen Roach

Inflation risks are mounting and the Federal Reserve’s “glacial” normalization pace isn’t adequate to cope with it, Yale University’s Stephen Roach warned on Thursday.

“Supply chains have been a major force holding down global and U.S. inflation, and they are being unwound by tariffs on China,” he said on CNBC’s “Power Lunch.”

Those tariffs will hit China-centric supply chains, while the revision to NAFTA will raise the price of North American vehicle costs, he explained.

Domestically, the 30-year low in the unemployment rate is finally leading to wage pressure and that will pose problems for earnings in an overvalued stock market, added Roach, who served as Morgan Stanley Asia chairman for five years.

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