Investors will return to the market on Tuesday with their eyes focused on Fed Minutes from the Federal Reserve’s last policy meeting in December that will be released on Wednesday followed by a private sector employment report for December due on Thursday and a closely watched non-farm payroll report on Friday from the U.S. Labor Department that will give more clues about the strength of the U.S. labor market.
After raising interest rates three times in 2017 amid an improving economic backdrop, Committee members from the Federal Reserve are expected to continue raising interest rates with the U.S. federal funds in 2018.
Based on their latest economic projections from their December policy meeting, the Federal Funds is expected to increase to 2.1 percent by the end of 2018, up from 1.4 percent after the Fed’s last policy meeting in December.
Core PCE inflation, the Fed’s preferred inflation gauge, is expected to rise from 1.9 in 2017 to 2.0 percent in 2018, reaching their 2 percent inflation target.
During the last Federal Reserve press conference on December 13th, Fed Chairwoman Janet Yellen explained that with the new tax cuts in effect in 2018, Fed Committee members have identified tax policy as a factor supporting a “modestly stronger outlook.”
However, she also noted that “much uncertainty remains about the macroeconomic effects of the specific measures that ultimately may be implemented” and admitted ” a good deal of uncertainty about what the impacts would be.”
Asked if she believed President Trump’s earlier claim about the U.S. GDP climbing to 4 percent from the new tax cuts which lowers the U.S. corporate tax rate by historic levels from 35 percent to 21 percent, Fed Chair Yellen replied, “no” and added that “everyone recognizes that there’s uncertainty about what the economic effects would be” and emphasized that its challenging to achieve a 4 percent growth level.
U.S. stock indexes have increased robustly over 20 percent in 2017, largely due to the anticipation of tax cuts, strong corporate results, and an improving global macro environment.
According to a November economic report from Goldman Sachs, global GDP is expected to continue rising in 2018 and increase from 3.7 percent in 2017 to 4.0 percent in 2018.
Goldman Sachs noted in their report that global growth is broad-based across most advanced and emerging economies but wrote that the bigger near-term risks to the outlook are likely political, ranging from the future of NAFTA, the Italian election in March, and the risk of military conflict on the Korean peninsula.
The International Monetary Fund (IMF) has a 3.7 global growth forecast for 2018, up from 3.6 percent in 2017, according to their released October forecast.
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