The steady growth in employment rates in the beginning of 2017 set a pace for President trump’s agenda on faster economic growth. On the other hand, the increasing rate of job growth triggered the feds to hike the interest rates with the intention of inflation.
The fed chair Janet Yellen said in a recent post that the hike in interest rates will be faster than any other hike in the previous years. This will be the first time that the interest rates are rising under the new president. A collision between President Trump and Janet Hellen is likely to arise since Trump is still focused on accelerating the growth of the economy while the feds are looking to slow it down to a notch.
Trump’s agenda in detail
President Trump has a completely different version of how he wants the economy run. He plans to reduce regulations, reduce taxes and increase spending in infrastructure. It is his hope that a virtuous cycle of investments will be created which will boost the economy. He has promised that if his policies are put in place, a 4 percent economic growth should be expected.
According to him, this agenda will help companies increase their investments and thus, more jobs will be created. With more jobs, the unemployment rate will decrease completely. Companies will afford better equipment and also, better technology will be developed to make work easier and efficient. In the long run, production of goods and services will increase and prices will be stable.
Federal rate increase and its impact on US citizens
The federal reserve has a responsibility of ensuring price stability and at the same time maximize employment in the country. With the recent increase in job growth, the feds see the need to hike interest rates as a way of maintaining price stability. With the hike in interest rates, lending rates will increase, investment rates will reduce, cost of borrowing will be high, money supply will reduce and the country may have to go to a recession.
The feds are worried that the tax cuts and the increase in spending being proposed by the president will increase inflation rather than improve the economy. They are worried that the US government will be forced to borrow from foreign countries and the treasury will have to borrow at high rates which lead to even more debt.
For that reason, they still remain focused on hiking interest rates with an attempt to reduce inflation to 2% by 2018.
In conclusion, all though the president agenda is already facing opposition from the feds; the possibility of increase in investments, the reduction in taxes, and the promise of a 4% economic growth has created optimism among the US citizens. We just have to seat back and hope for the best.