Robert Kuttner on anticipated Fed policy under #47
Within broad limits, increased deficits per se need not be inflationary. But the Fed thinks otherwise. If Trump’s budget includes large increases in the federal deficit, we can expect the Fed to cease cutting interest rates.
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As Trump’s other policies increase the rate of inflation, that will also spook the Fed into tightening money. Higher interest rates not only slow the economy; they themselves are inflationary because they raise borrowing costs on things like mortgages and auto loans.
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