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US: Fed divided on fiscal stimulus effect on growth


Members of the Federal Open Market Committee (FOMC) are divided on how President Donald Trump's fiscal stimulus package will affect the U.S. economy, minutes from a Federal Reserve meeting showed Wednesday, APA reports quoting Anadolu Agency.

 

"About half of the participants did not incorporate explicit assumptions about fiscal policy in their projections," details form the March 14-15 meeting read.

 

It said, on the other hand, half of the members included fiscal stimulus into their expectations and project "slightly higher real GDP growth next year”.

 

Members, however, mostly agreed that any meaningful fiscal stimulus and its effect on the economy would not likely start until the beginning of next year.

 

Trump has promised to lower corporate tax rates and spend at least $1 trillion on infrastructure but has provided little details.

 

With improving economic conditions, the Fed increased interest rates by 25 basis points on March 15. The minutes said rate hikes would continue gradually as long as "the economy continued to perform about as expected”.

 

Raising interest rates, however, is tied to the Fed reducing its $4.5 trillion balance sheet this year, which includes government bonds and mortgage securities.

 

The assets were acquired during and after the 2007 financial crisis, when the central bank lowered interest rates to almost zero percent and began accommodation to make money easier to borrow to stimulate growth.

 

During that time, the Fed’s holdings rose from less than $1 trillion to $4.5 trillion.

 

Since the Fed began to gradually end accommodation and is now increasing interest rates, it is time to gradually phase out those assets, according to fundamentalists.

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