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US Interest Rate Hike Remains Uncertain:An Analysis Based on Historical Evidence

LIU Naixi;ZHANG Ming;China Agricultural University;Pennsylvania State University;Institute of World Economics and Politics,CASS;  
The market is widely expected to raise interest rates by the Fed at least three times in 2017.In view of this expectation and based on historical data,we take the analysis from three aspects,the evolution of the Federal Reserve monetar y policy rules,Trump's economic plan impact and the US economic recovery fundamentals.The results show that the Fed will continue to maintain a cautious slow rate hike in 2017.Firstly,the Fed's monetar y policy rules are still not divorced from the Taylor rules,while focusing on financial market stability and economic growth robustness goals.From the Fed's main policy objectives,although the current rate hike window has been opened,still do not have a quick basis for raising interest rates.Secondly,the impac t of Trump economic plan on the economic recovery and the Federal Reserve's balance sheet may limit the Fed' s motivation for raising interest rate before the clear of Trump's policies.In addition,there is no background of the Reagan era for Trump,in which the fiscal expansion cannot easily lead the United States return to the era of great stability.Finally,private sector investment remains deep observation from the fundamentals of the current US economic recovery,while household consumption,household income and the real estate market have returned to the level before the subprime crisis,which means that the current may have been in the midst of recovery,rather than just beginning.These factors may prompt the Fed to take a cautious rate hike to avoid the unknown risk.In the past,long-term ultra-relaxed environment,the deepening of global integration,and the US economic growth momentum for the track,have made the Fed policy has entered a more cautious and sensitive new era.
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