A Fed Rate Increase Is Expected. But What Comes Next?<br />Economists at Goldman Sachs analyzed the Senate version of the tax cut using the Fed’s economic model and concluded<br />that it would add about 0.25 percentage points to economic growth for a few years, which could cause the Fed to raise rates by an additional half a percentage point above current projections.<br />Robust job creation in November is the latest sign of stronger economic growth, and it comes as Republicans are preparing a $1.5 trillion tax cut<br />that President Trump has described as economic “rocket fuel.”<br />The Fed is widely expected to acknowledge the strength of the economy by increasing its benchmark rate<br />by one quarter of a percentage point on Wednesday, after its final policy meeting of the year.<br />The presidents of some of the Fed’s regional reserve banks have offered their own forecasts, generally in line with the consensus among independent economists<br />that tax cuts would be likely to increase both economic growth and inflation by a modest amount in the short term.<br />Because some Fed officials think the economy is already growing at a pace<br />that is likely to increase inflation over time, they have said that faster growth would not be welcome.<br />“I’m not in favor of tax stimulus at the current time<br />because the economy doesn’t really need it,” William C. Dudley, president of the Federal Reserve Bank of New York, said late last month.
