As tax reform looms closer and closer, the Fed may be faced with making some tough decisions. CNBC reports that:
In addition to driving up the national budget deficit, the Republican-sponsored tax reform plan also likely will push up growth and cause the Fed to hike interest rates faster than it had planned, according to a Deutsche Bank analysis.
The Fed has been weighing its interest rate adjustments very heavily in the past few years, with rates being quite low for some time. The scheduled rate changes that were proposed at the last meeting saw them change even less than expected, so this report from Deutsche is quite significant.
The Fed currently expects to approve one more increase this year, then six more through the end of 2019. Should the tax cuts be approved and generate growth, Deutsche Bank’s analysis sees the Fed undertaking at least one or two more hikes than planned through 2019.
We will have to wait and see if these rate hikes will come to pass and if Deutsche’s prediction is correct, but if it is, how will the markets react?
Warren Buffett told CNBC that:
…stock market valuations make sense with interest rates where they are. Rates have been a “powerful factor” in equities values, he said.
The second wealthiest man in the world has made his fortune by gauging the markets effectively over the years and his opinion should therefore be taken to heart. Should the Fed suddenly adjust their approach to interest rates by a factor of two or three, it could have a serious impact on stock evaluations.
Investors should keep their eyes out for any future Fed meetings to stay informed on any rate changes.
To read CNBC’s article on Deutsche’s rate predictions, click here.
To read CNBC’s interview with Warren Buffett, click here.
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