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Federal Reserve considers retiring low-rates guidance

December 6, 2018

The Federal Reserve is heading towards a restrictive monetary policy this week, despite global risks as a commercial war demanded by Donald Trump.

Many expect monetary policy to be pushed to even more restrictive levels, such that Fed Chairman Jay Powell could gradually dispose of the low-rate strategy that the central bank adopted during the crisis.

The prediction on the rate of federal funds would be the increase of another quarter of a point, bringing rates to 1.75-2% in the seventh increase in the current cycle. Further increases are expected for the rest of the year, with others coming in 2019.

The real dilemma is now on central bank interest rates and how they will change over the medium to long term.

Many analysts now expect the Fed to increase in rates with a total of four increases by the end of this year. Goldman Sachs analysts predict a further three increases in 2019, other officials have suggested that eventually the central bank will likely push rates beyond neutrality, the level that neither stimulates the economy nor holds it back.

Finally, the latest Fed forecast led the federal funds rate to 3.4% in 2020, above the estimated long-term level of 2.9%.

Source: “Financial Times”

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