While the financial markets wait for higher rates orchestrated by the Fed, officials of the central bank are looking toward fiscal policy as a major catalyst for their rate hikes.
Vice Chair Stanley Fischer, speaking before the Economic Club of New York on Monday, said that according to the Fed's FRB/US model, an increase in government spending equivalent to 1% of GDP would raise the equilibrium interest rate 50 basis points, or 0.50%, while a 1% cut in taxes would raise it by 40 basis points and a 1% increase in corporate investment would add just 30 basis points.
He noted that the model does not include much detail about taxes and government spending but rather measures the effects of “very broad changes in income taxes and government spending.”
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Bernice Napach
Bernice Napach is a senior writer at ThinkAdvisor covering financial markets and asset managers, robo-advisors, college planning and retirement issues. She has worked at Yahoo Finance, Bloomberg TV, CNBC, Reuters, Investor's Business Daily and The Bond Buyer and has written articles for The New York Times, TheStreet.com, The Star-Ledger, The Record, Variety and Worth magazine. Bernice has a Bachelor of Science in Social Welfare from SUNY at Stony Brook.
