Does congress and the executive branch talk to the Fed?
Or will we grow our way beyond inflationary concerns and higher rates?
Administration officials have downplayed the risk of simultaneously slashing taxes and boosting spending, arguing that the result will be faster growth that will then shrink the debt. But the higher deficits would come just as the Federal Reserve is on course to continue – and perhaps accelerate – the pace of its short-term rate hikes. The Fed’s rate increases will likely lead, in time, to higher borrowing rates for consumers and businesses and likely slow economic growth.
One tenet of modern economics has been that the government should run higher deficits during a recession to help the economy heal but then reduce those deficits when the economy is relatively healthy, as it is now.
The market’s plunge over the past week was initially ignited by fears of higher inflation and interest rates. But investors have also had to consider a new threat: A two-year government funding deal that would add about $300 billion to budget deficits from higher spending. The Fed might have to respond by raising rates more aggressively to counter the stimulative effect of the spending increases.
Increasing budget deficits deliver a “double whammy” to investors, said Mark Zandi, chief economist at Moody’s Analytics. “Treasury is going to be issuing a lot more bonds to finance deficit-financed tax cuts and spending increases … and the Federal Reserve will have to be more aggressive in raising interest rates” to offset the stimulus.
http://www.spokesman.com/stories/2018/f ... oking-sto/
