The Federal Reserve is expected to raise interest rates at its first policy meeting under Chairman Jerome Powell and may signal more hikes are coming in response to tax cuts and government spending that could further stoke a robust U.S. economy. The “dot plot” will be closely watched for any indications of a potential update of the Fed’s projected path of interest-rate hikes for the next two years.
The Fed’s effort to stimulate the world’s largest economy after the 2007-2009 financial crisis and recession is coming to an end. It raised the benchmark interest rate three times last year, to a range of 1.25 to 1.50 percent, as the jobless number fell and economic growth accelerated. It is expected to raise rates by another 0.25% on Wednesday.
While the markets anticipate the following increase in June, Powell's Fed could leave its rate outlook unchanged until then to see how the economy absorbs the $1.8 trillion in stimulus expected from the Trump administration tax cuts and planned spending.
The U.S. central bank projected late last year that it would lift rates three times in 2018, but some investors believe the fiscal stimulus and recent hints of inflation pressures will push policymakers to add an additional increase to the mix.
Fed officials have speculated in recent weeks that the stimulus could drive more Americans into an already tight labor market and lift inflation to the central bank’s 2 percent target, or much above that level if the economy gets overheated.