What President Donald Trump giveth to the economy with massive tax cuts, Federal Reserve Chair Janet Yellen may be tempted to taketh away with higher interest rates.
With the economy already near maximum employment, the central bank is inclined to use tighter credit to keep the economy from overheating as taxes are reduced and budget deficits increase.
Fed officials, who have penciled in two more interest rate increases this year and three next, have said they see possible fiscal stimulus as an upside risk to the economy. That risk is only magnified if Trump relies on more government debt, rather than offsetting tax code changes, to finance his cuts, as administration officials have indicated he might.
Trump’s proposal, an outline of which was announced Wednesday by Treasury Secretary Steven Mnuchin and top White House economic adviser Gary Cohn, potentially puts the administration on a collision course with Fed officials who