Question

On December 16th, 2015, FED decided to raise first time the record low target rate of federal reserve fund from 1/4% to 1/2%.
On December 14th, 2016, Fed decided to raise the second time the federal fund rate from 1/2% to 3/4%.

On March 15th, 2017, Fed decided to raise the federal fund rate from 3/4% to 1%.

On June 14th, 2017, Fed decided to raise the federal fund rate from 1% to 1.25%.

On December 13th, 2017, Fed decided to raise the federal fund rate from 1.25% to 1.5%.

On March 21st, 2018, Fed decided to raise the federal fund rate from 1.5% to 1.75%.

On June 13th, 2018, Fed decided to raise the federal fund rate from 1.75% to 2 %.

On September 26th, 2018, Fed decided to raise the federal fund rate from 2% to 2.25%.

On December 19th, 2018, Fed decided to raise the federal fund rate from 2.25% to 2.5%.

On July 31st, 2019, Fed decided to cut the federal fund rate from 2.5% to 2.25%.

On September 18th, 2019, Fed decided to cut the federal fund rate from 2.25% to 2%.

On October 30th, 2019, Fed decided to cut the federal fund rate from 2% to 1.75%.

On December 11th, 2019, Fed decided to maintain federal fund rate at 1.75%.

Fed agrees that economic recovery is still moderate, Also Fed feels that the job market is strengthening and the long term inflation signs stabilized. But Fed also feel it is not necessary to maintain such accommodating easy monetary policy including very low interest rate ,Since the unemployment continue to remain low and inflation rate stays to remain near 2.0%.

Fed decided that the size of the mortgage bond purchase as QE policy was winding down on October 2014 as the economy continues to improve.

The future rate hike will be gradual, depending upon the upcoming economic indicators.

  Will the new president's proposal of spending increase on infrastructure and defense as well as tax cut on corporate income tax and individual income tax may overheat US economy to be inflationary? if so, will it cause Fed to speed up the rate hike? If Tariff over trade and possible retaliation could be inflationary, does it give another incentive for Fed to speed the rate hike?

Answer 1

As we see that Fed feels that there is no unemployment present in the country and the US economy is stable at Economic ftont. If the new president announces the above proposal of increase spending on infrastructure and defence as well as tax cut on corporate income and personal income. In my opinion it will not increase the inflation in US economy in short run but in long run if this process happenes then the inflation will increases and US economy can falls in recession. On the Above condutcon Fed will minimally started to incrwain the rates because they know and can predict the upcoming events of series. And if the Tariffs over trade and possible retaliation could be inflationary then i think Fed will try to start the hiles of rates. to cut the inflationary gap and mobillis the trade and tariifs.