The Fed Will Give Trump Room to Run

Many Fed watchers believe that the central bank could undercut efforts by President Donald Trump to spur faster economic growth by raising interest rates to offset fiscal stimulus. The minutes released Wednesday of the Fed’s policy committee’s March meeting, however, indicate that the Fed isn’t in a rush to raise rates.

Fed officials now believe that Trump’s fiscal, regulatory, and infrastructure policy changes will not have a significant effect on the economy until sometime in 2018. Fed officials “pushed back the timing of when those policy were anticipated to take effect,” the minutes said.

They now think that “meaningful fiscal stimulus would likely not begin until 2018. In view of the substantial uncertainty, about half of the participants did not incorporate explicit assumptions about fiscal policy in their projections.”

Far from worrying that the economy is in danger of overheating, the minutes make it clear that Fed officials see the risks to economic growth as “tilted to the downside.” That’s Fed-speak for the notion that the economy is more likely to grow more slowly than expected than it is to grow at a faster clip.

Overall, however, the Fed’s economic projections were mostly unchanged since the December meeting, when officials boosted their growth expectations based on the belief that the government would adopt more pro-growth policies.

Fed officials also noted “considerable uncertainty about the timing and nature of potential changes to fiscal policies as well as the size of the effects of such changes on economic activity.”

Taken together, these comments indicate that the Fed is taking a wait and see attitude toward Trump’s policies. That means that he likely has more room to adopt economically stimulative policies before he runs into opposition from central bankers.