From the NY Times:
The Federal Reserve, buoyed by a steadily strengthening economy, raised interest rates on Wednesday for a fifth time since the financial crisis and predicted that a proposed tax cut moving through Congress would modestly increase economic growth for the next few years without stoking inflation.
As a result, the Fed said it did not expect the legislation, which President Trump has called “rocket fuel” for the economy, to accelerate the Fed’s plans to raise interest rates in 2018 and indicated it remains on track for three rate increases next year.
The Fed’s highly anticipated economic assessment, delivered after a two-day meeting of its policymaking committee, amounted to a lukewarm endorsement of the Trump administration’s top economic priority. Mr. Trump has suggested that the $1.5 trillion tax cut could nearly double economic growth to as much as 6 percent, a level far greater than most economists think likely.
“My colleagues and I are in line with the general expectation among most economists,” said Janet L. Yellen, the Fed’s chairwoman. She said they expected the bill to provide “a modest lift.”
Ms. Yellen spoke at a news conference after the Fed announced a widely expected decision to increase its benchmark interest rate by a quarter of a percentage point, to a range of 1.25 percent to 1.5 percent. The increase continues the Fed’s gradual march toward higher rates, which were cut to near-zero during the financial crisis. Wednesday’s increase is the third time this year that the Fed has raised rates, reflecting its confidence that the economy is in good health.
The Fed and Congress are moving in opposite directions. The Fed, in raising rates, is reducing the support it has provided to the economy since the financial crisis. Congressional Republicans, meanwhile, are preparing a $1.5 trillion tax cut for businesses and individuals with the aim of stimulating economic growth.
Some Fed officials, including Ms. Yellen, cautioned earlier this year that tax cuts could push the pace of growth to an unsustainable level, resulting in higher inflation, and that the Fed might respond by raising interest rates more quickly, to restrain growth and keep a lid on inflation.
After seeing the details of the tax plan, however, Fed officials have concluded that there is no need to raise rates more quickly. A quarterly update of the Fed’s economic forecast showed that officials still expect to raise rates three times next year — unchanged from the last economic forecast.
“We continue to think that a gradual path of rate increases remains appropriate even with almost all participants factoring in their assessment of the tax policy,” Ms. Yellen said on Wednesday.
In part, the Fed has concluded the tax plan doesn’t pack a large punch. Fed officials predicted that the economy would grow at a 2.5 percent pace next year; the previous forecast was 2.1 percent.
President Trump has predicted that the tax plan could deliver 4 percent growth or more.
Apprised of those comments by a reporter, Ms. Yellen responded: “I wouldn’t want to rule anything out. It is challenging, however, to achieve growth of the levels that you mentioned.”