The Fed: Will it keep raising rates?
The Federal Reserve hiked its key benchmark interest rate for the third time in 2018 this week, said Binyamin Appelbaum in The New York Times, lifting it a quarter point to 2.25 percent. The Fed said the benchmark rate—which was cut to near zero during the financial crisis to boost the economy—is now back at a historically neutral level, “meaning monetary policy is neither stimulating nor restraining economic growth.” That doesn’t mean the Fed is done raising rates. With an economy surging, fueled in part by President Trump’s tax cuts, more hikes might be needed to maintain control of inflation.
The central bank is divided over what will happen next year, said Nick Timiraos in The Wall Street Journal. One side thinks that if unemployment, now down to 3.9 percent, keeps falling, the Fed will need to raise rates to head off an unsustainable boom. The other camp believes that if inflation, now at 2.8 percent, can be brought down to 2 percent, there will be no need to raise rates further. The Fed has raised rates eight times since 2015, and slowing down the pace of increases to let the economy run faster would assuage Fed critics, including President Trump. ■