Fed Weighs 2018 Rate Hikes Against New Tax Law

The Federal Open Market Committee said it expects economic growth from the new tax legislation but was unsure about the pace of growth in deciding when and how many times to raise rates this year, according to minutes following the FOMC’s Dec. 12-13, 2017, meeting. During the meeting, the committee decided to raise the target federal funds rate 25 basis points to 1.25 to 1.5 percent, the third and final rate hike of 2017.

Most committee members boosted their projections of GDP growth based on the tax policy changes, but further rate hikes would depend on the pace of growth. Along with stronger projected growth in 2018, the committee projected a leveling off by 2020, which contributed to the uncertainty. However, “nearly all participants saw it as likely to be appropriate for the federal funds rate to rise above their estimates of its longer-run normal level at some point during the forecast period.”

FOMC members acknowledged the economy continued to grow at a “moderate pace,” with a steady decline in the unemployment rate and an improving housing market. The committee did, however, say its uncertainty around GDP growth, unemployment and inflation was “similar to the average of the past 20 years.”