It is September 26, 2017. The FOMC has just announced that it will hike rates to 2.25 percent. The Fed’s interest rate committee foresees strong economic growth for the years coming, unemployment declining even further, as well as subdued inflation. In other words, economic wonderland. According to my view, this was too good to be true, as I have explained earlier along these lines.

Days later, at the beginning of October, the Fed Chief Jerome Powell points out that an interest rate of 2.25 percent “still remains far removed from its neutral level.” The neutral rate is a level at which the Fed neither stimulates nor puts the breaks on the economy. According to the central bank, the neutral rate lies somewhere near 3 percent. A “rate that is still far from its neutral level” amid conditions of continuous strong growth and declining unemployment would imply that the Fed would continue to raise the most important benchmark rate of the country. More precisely: that the Fed would raise rates once more in 2018, three times in 2019 and twice more in 2020.


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