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Federal Reserve hopes tax cuts will lift economy

Fed raises rates

WASHINGTON - Federal Reserve officials were hopeful last month that the major tax overhaul taking effect this year will boost the economy. But they were split over how fast they will need to raise interest rates in 2018.

Minutes of the Fed's Dec. 12-13 meeting show that officials believed the tax cuts would drive consumer spending and increased business investment, though they expressed uncertainty over the magnitude of the boost.

"Many participants expected the proposed cuts in personal taxes to provide some boost to consumer spending," the account of the meeting states. "A few participants noted that expectations of tax reform may have already raised consumer spending somewhat to the extent that those expectations had spurred increases in asset valuations and household net worth."   

The minutes indicate disagreement among Fed officials over how many times the Fed should raise its benchmark interest rate in 2018. Some felt that the projection of three rate hikes might prove too aggressive and prevent inflation from returning to the Fed's 2 percent target. Others felt more hikes might be needed.

Still, the overall direction of Fed policy is clear, according to Paul Ashworth, chief U.S. economist with Capital Economics,

" Fed officials re-affirmed at this meeting that they anticipate raising interest rates three times in 2018, matching the tightening in 2017, but we still anticipate that a slightly faster than expected rebound in core inflation will mean we eventually see four rate hikes in 2018,"  he said in a note.

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