The semiannual economic checkup from the Fed

The semiannual economic checkup from the Fed

Like a teeth cleaning appointment, the head of the Federal Reserve must visit Congress every six months. The Central Bank chair has to sit for two days updating the House and Senate on the American economy. Traditionally, the head of the Fed tries his or her best not to make any news or surprise the markets. And like a dentist reminding a patient to floss, the Fed chair usually chides lawmakers for borrowing too much money.

Newly installed Federal Chairman Jerome Powell has his first biannual congressional appointments on Wednesday and Thursday in the week ahead.

Worries about two key interrelated forces — one economic, one market-based — have helped fuel investor concerns in recent weeks. Higher inflation and higher interest rates give the Fed cover to continue raising its own target interest rate.

While worker wages have increased, the Central Bank remains unconvinced that long-term inflation is about to damage the economy. Yes, incoming inflation data has been picking up, though it remains below the Fed’s own 2 percent annual target. However, according to minutes of the Federal Reserve’s Open Market Committee Meeting in late January, officials are increasingly anxious the overall economy is picking up speed. That assessment sweetens the odds that the bank will keep raising rates in the months ahead.

So does the sugar-high from government spending and tax cuts. The Committee for a Responsible Federal Budget figures the government deficit will be over $1 trillion in 2019 with the debt load threatening to rot away future economic growth.

The American economy may not have any gaping cavities now, but piling on deficits during these times threatens to decay the long-term potential of broader prosperity.

 

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