On June 5, 2017, Federal Reserve Chair Janet Yellen and her team of economists and strategists released the statement that marked the culmination of the Federal Reserve System’s (Feds) first year in office.
The statement, titled “Policy and Operation Implications of the Second Stagflation in the United States,” outlined a range of potential policy and operational implications of the Fed’s decision to raise rates to 0% in 2018.
As we noted at the time, the Fed, along with other central banks, is expected to make more decisions regarding monetary policy at its June 15-16 meeting, which is scheduled to take place in Washington, DC.
Here are five things to watch:1.
The Fed’s 2018 interest rate increase target.
The US central bank will increase the federal funds rate by a further 0.75% to 0.80% in the 2018 quarter.
The Federal Open Market Committee (FOMC) will vote on whether to lift the benchmark rate in September.
The FOMC’s decision will come in October, with the Fed likely to lift its benchmark rate back to a rate close to its June rate target.
If the FOMCC lifts the target, the Federal Open Bank (FUB), which serves as the lender of last resort for the Fed to raise interest rates, will also act as the de facto lender of final demand.
The Devaluation Act, which requires the Federal Deposit Insurance Corporation (FDIC) to maintain a “safe harbor” in case the Fed raises interest rates too soon, will remain in place.
The act would not have a direct impact on the Fed but could potentially reduce the Federal Funds Rate in the short term if the Fed did not intend to increase interest rates in 2018 as soon as September.2.
What is the Fed raising rates?
The Fed says that its rate increase targets are based on three assumptions: that inflation will be at 3.0%, 4.0% or 5% in 2020, 2021 and 2022; that the US economy is growing at a 3.5% rate in 2020; and that the unemployment rate remains below the Fed target.
While this is the core target of the central bank, it is not the only one, as the Fed could increase rates as soon and as broadly as the economy requires to reach its inflation target.3.
What should investors expect in the Federal funds rate?
The Federal Funds rate has been the benchmark for the Federal Government since the beginning of the 20th century.
However, the interest rate is subject to a variety of factors that can affect its value.
Inflation is the key driver of interest rates.
It has risen by about 2% since the onset of the Great Recession, and has averaged 2.9% for the past four years.
In the past two years, it has also averaged 1.2% higher than the previous year, as shown in the chart below.
It is a long-term interest rate, meaning it is subject, in some sense, to longer-term rates.
As such, the current level of the US central banker’s rate target, which was set at 1.0 percent in December 2017, will stay the same, at 0.95%.4.
What will the Federal debt level be when the Fed lifts interest rates?
At the time of the 2018 Fed statement, the debt level of US households was $14.5 trillion, or about 9.7% of gross domestic product (GDP), and the debt ratio was 4.1%.5.
What are the implications of a 0% interest rate?
Economists and strategist Robert Mueller testified before Congress on March 15, 2019, that a 0.25% rate hike would lead to the US defaulting on a debt of $1.2 trillion, according to a report from Bloomberg.
The report noted that the default rate would rise from 0.5 to 1.25%, the amount the US government owes on its national debt.6.
What would happen if the Federal Debt goes up to $15.3 trillion?
As discussed earlier, the US has a debt ratio of about 4.6%, which means the US will be able to default on its debt of about $15 trillion, Bloomberg noted.7.
How does the Fed raise interest rate in 2018?
The US has historically done this by raising the interest rates of its bond and mortgage-backed securities (BIS), which were the primary means by which it purchased dollars and lent them out to other governments.
The increase in the Fed rate is intended to increase the interest paid by borrowers and increase the yield on those bonds.
This increase in interest rates is known as the “forwarder” effect.
The forwarder effect is a two-stage process: first, the rate will be raised in the first two months of the next year; and second, it will be lifted in the third and final quarter of the year.
For the 2018 year, the