Trump should not spend like economy in crisis: Fed officials

Mon Dec 5, 2016 7:00pm EST
 
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By Howard Schneider

PHOENIX (Reuters) - Federal Reserve officials cautioned on Monday that the incoming Trump administration's economic plans should not be cast as if the economy is in crisis, but instead be designed to help the economy's long-run prospects.

The comments reflected a developing debate within the Fed over the impact of president-elect Donald Trump's leadership of a Republican-controlled government.

Fed officials worry there is risk that overly aggressive fiscal, tax and other changes could become inflationary given the economy's current strength.

That could force the Fed into more rapid interest rate increases and possibly raise the risk of recession. Yet there is also potential, officials feel, for well-designed tax, regulatory and infrastructure spending to boost the country's lagging productivity.

Properly designed and executed policies to boost infrastructure, modify regulations for some industries and overhaul the tax code "may have some impact ... if they are directed towards improving medium-term U.S. productivity growth," St. Louis Fed President James Bullard said in remarks in Phoenix at a luncheon sponsored by Arizona State University.

But "these policies should not be viewed as countercyclical measures," Bullard said. "The economy is not in recession today."

"An infrastructure plan would be terrific, that would be good," Chicago Federal Reserve bank president Charles Evans said in Chicago. "I think corporate tax rationalization would be a huge improvement."

Yet he agreed: "you don't need explicit stimulus" with the jobless rate already so low.   Continued...

 
St. Louis Fed President James Bullard speaks about the U.S. economy during an interview in New York February 26, 2015. REUTERS/Lucas Jackson/File Photo - RTX2TY27