Fed Raised Economic Forecast following Tax cuts

The Federal Reserve officials predict the reductions in corporate and personal taxes will step-up consumer and business spending, although the effects of the new tax law are still uncertain, based on the December minutes of the meeting published on Wednesday.

Members of the Federal Open Market Committee had higher expectations this new year for the GDP growth to increase from 2. to 2.5 percent, since the post-financial crisis recovery.
The FOMC being the monetary policymakers, raised their benchmark rates by a quarter point from 1.25 to 1.5 percent, which is relative to the consumer lending rates. Majority of the participants see possible changes in the federal tax policy, which will contribute to the development of the real GDP growth in the next few years.

Majority of the discussion implies a strong prediction of the economy. Overall, topics on augmenting the employment rate as it dropped down to 4.1 percent while the industrial production rose at a faster rate.

Spending during the holidays was steadfast in some of the Fed districts due to the expected outcome of higher consumer spending following the tax reduction. Moreover, the stock market also gained, as reflected by the rise of 20 percent in the S&P 500.

A big part of the market gains is primarily due to the Republican tax revision since  Congress has not yet passed the amendment when the FOMC held their meeting on December 12 and 13. As of now, the corporate tax rate is supposed to be reduced from 35 percent to 21 percent and revised down tax brackets for the majority of workers.  

Looking at the increasing stock market as a whole, some of the officials raised concerns in sustaining the monetary policies, which could initiate market bubble when the approach is too agreeable.

On another side, some market players also see the accommodating stance of the financial market to induce risks over time and affect financial stability in consideration of higher asset values and low volatility condition.