How the New Tax Bill Might Affect Federal Reserve Rates


Today the Federal Reserve offers a detailed policy on the 2018 outlook for financial policy makers in government and in private banking as it releases their board meeting minutes from last month, January. Last month the board of governors kept the benchmark federal funding rate unchanged from an average of one to one-point-five percent.


But since last month’s meeting stocks have plummeted and then come back up and the yield on bonds has taken off since the beginning of February. So market volatility is a critical issue. Add to that the new tax bill and the unexpectedly generous funding the government is providing the military and other key areas, and the Fed’s assessment may need a major overhaul before it can become a useful signpost. The January minutes are expected to indicate how Federal officials looked at the economy at the beginning of the new year, and a review of their current fiscal policies. Here’s what to look for:


The Federal Reserve minutes will mainly be about the expected impact of the new tax bill that went into effect at the beginning of the year. The ripple effect through the nation’s economy will be planned for, but whether that means extended flat rates to steady the investment market, or a push for higher interest rates to control inflation is yet to be known.


In December of last year, before Congress passed the new tax law, the Fed tentatively penciled in 3 small rate hikes for 2018. The January notes will reveal if that strategy is still in place, or has been replaced by something more radical. The word on the street is that if rates go up too much, the stock market will take another plunge that will last well into March.