ZCZC
BCN-12
US-ECONOMY-BANK-RATE-REPORT
US Fed sees tax cuts boosting spending, offsetting oil price rise
WASHINGTON, July 14, 2018 (BSS/AFP) – The US tax cuts will boost business
and consumer spending this year, offsetting the hit to individual wallets
from rising fuel prices, the Federal Reserve said Friday.
The increase in oil prices also should attract more investment to the
sector, which will boost growth, according to the Fed.
In its semi-annual report to Congress, the Fed was upbeat about the US
economy and saw few concerns about inflation but noted the risk to the global
economy from “an intensification of trade tensions.”
US central bankers have for months flagged the rising concerns among
businesses nationwide over the aggressive trade policies pursued by President
Donald Trump. They have cautioned that such policies could pose a risk to US
growth.
– Less of a drag –
Despite the rapid increase in oil prices over the past year, the Fed said
the impact on economic growth was less than it once was.
“Although higher oil prices are likely to restrain household consumption
in the United States, much of the negative effect on GDP from lower consumer
spending is likely to be offset by increased production and investment in the
growing US oil sector,” the report said.
“Consequently, higher oil prices now imply much less of a net overall drag
on the economy than they did in the past.”
And the tax cuts have boosted disposable income and “should lead to
increased private consumption and investment,” which will support growth.
US GDP slowed in the first three months of the year but is expected to
have expanded by as much as four percent in the second quarter.
MORE/HR/1012
ZCZC
BCN-13
US-ECONOMY-BANK-RATE-REPORT 2 LAST WASHINGTON
Fed Chair Jay Powell is set to testify before Congress on Tuesday and
Wednesday to answer questions about the state of the economy and how the
central bank views the path of interest rates.
In an interview with NPR on Thursday, Powell noted the benefits of the
global trading system to the US economy which he said had been served “very
well” by lower tariffs.
He cautioned that if the trade disputes led to “high tariffs on a lot of
products and a lot of traded goods and services…that could be a negative
for our economy.”
The report cited as one potential downside risk to international financial
markets the “intensification of trade tensions and challenges posed by rising
interest rates.”
The Fed raised the benchmark lending rate in March and June and is
expected to raise rates twice more this year.
But the central bank did not seem overly concerned about inflation, which
is running right around the two percent target, since wages are rising only
moderately even though labor markets are tight.
Rising lumber prices and a shortage of skilled labor have been
“restraining home construction,” the report said.
BSS/ AFP/HR/1015