The Fed interest rate is expected to increase by a quarter percentage point after its two-day meeting ending Wednesday. It is also expected to predict higher inflation, stronger growth and perhaps even more interest rate hikes this year.
Consumer Inflation to Hit Over 2%?
Why is this? One reason is that it believes that consumer inflation will exceed 2%. This precludes any increases in food and energy prices. The target of 2% is the Federal Reserve’s target figure for a rate hike. Therefore, nobody should be surprised if there is an interest rate increase shortly.
Three rate increases have been forecast by the Fed for this year, and Wednesday’s (today’s) increase will be only the second. In fact, some economists are predicting four increases this year.
Potential Trade War Between US, Canada, China and Europe
One issue that the US may have to face is a trade war with the US, China, Canada and the EU (including the UK). Should this be the case, then the USA may face a recession next year. Add a recession to inflation, and you have a recipe for economic disaster. The tariffs applied by Donald Trump on steel and aluminum imports from Canada, the EU, Japan, Mexico and the UK are sure to see a response.
Trade War With China
This may lead to a trade war with China and other countries that the US cannot win. This will almost certainly lead to the inflation of prices of imported goods within the US. However, a major issue facing the US government is whether or not the expected tit-for-tat tariffs will actually happen (likely) and if they do, what their effect may be on the US economy (likely negative).
While nobody knows for certain, many analysts believe that a trade war with China may lead to a recession next year. If that is combined with EU, UK and Chinese tariffs on US-built cars then that could result in a disaster for the US economy. The USA has lost the friendship of many trading partners recently, and President Trump’s attitude has not helped.
Fed Interest Rate Increase Expected to be 0.25%
Time will tell whether or not President Trump’s attitude toward its trading with its ‘friends’ will turn round and hurt him. What is certain is that it will hurt them. The fact that the Fed interest rate is expected to increase by 0.25% is irrelevant. What matters is that the Federal Reserve remains firmly behind the President and that it seems to be doing so – for better or for worse! For now, possibly the worse!
