The Federal Reserve of the United States has a dual statutory mandate of maintaining price stability and fostering maximum employment. In February 2018, Mr. Jerome Powell will succeed the current chair and chief executive of the Federal Reserve, Janet Yellen, for a four-year term. At the most recent meeting of the Federal Open Market Committee (FOMC), held on December 12 and 13, the Federal Reserve decided to raise the funds interest rate that it had established during its previous meeting in June, to a range between 1.25% and 1.5%. This is the third time that the Federal Reserve has raised the funds interest rate in 2017, making it the year with most interest hikes since 2006. The trend represents a moderate degree of optimism with the growth and performance of the national economy. Furthermore, if the United States’ economy as a whole continues to show positive signs of dynamism and low unemployment, more interest rate increases can be expected during 2018, bringing the number closer to the long-run target of 3.0% interest rates. Even though the recently legislated tax cut and jobs act should affect the national economy during 2018, its full medium-term impact is still to be assessed. Meanwhile, the next meeting of the Federal Reserve’s FOMC is scheduled for January 30 and 31 of 2018.

Economic Outlook for the United States in 2018

One key indicator of financial optimism throughout 2017 has been the Dow Jones Industrial Average (DJIA), which broke several records by growing from less than 20.000 points in December 2016 to its current level of almost 25.000 points. Similarly, unemployment in the United States has fallen to a structurally acceptable level of approximately 4.1% in November, while both household spending and business investment activities have increased. Simultaneously, the United States’ economy has been creating an average of 170.000 new jobs monthly during the last several months as well as increasing its aggregate amount of international exports. All of these dynamics create a positive outlook of sustained real GDP growth above 2.0% until 2019.

Meanwhile, overall inflation in the United States remains the one elusive monetary policy target for the Federal Reserve as it has registered consistently below the 2.0% target rate in recent years. This is mainly due to the prevailing low energy sector prices tied to increased oil and gas output as well as pipeline projects. For the time being, the Federal Reserve expects overall inflation to remain slightly below its 2.0% target through next year, in spite of continued attempts by major oil producers and the Organization of Petroleum Exporting Countries (OPEC) to raise global energy prices in order to increase their national profits. Most importantly, since the 2008 financial crisis, the Federal Reserve and professional economists have realized that the understanding of the forces driving inflation is more elusive and complex than previously thought.

(Read more about Fostering Economic Dynamism in Emerging Markets)

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