Officially, the Federal Reserve is trying to stay out of the political debate in Washington over tax reform and other fiscal measures.
But with so much on the line for the economy, and with the outlook for fiscal policy growing more unclear, Fed officials in practice have been unable to stay mum. In interviews, speeches and even official documents, the Fed has increasingly been weighing in.
The minutes of the May policy meeting noted that, "A number of participants pointed out that clarification of prospective fiscal and other policy changes would remove one source of uncertainty for the economic outlook." That's Fedspeak for it's hard to forecast when you don't know what policies will be and we'd prefer if you got on with it.
The minutes also say Fed members "view the possibility of expansionary fiscal policy changes in the United States as posing upside risks to their forecasts for U.S. economic growth." Translation: If you do it, it could be good.
About half of the members of the Federal Open Market Committee have upgraded their forecasts in anticipation of those policies. Many Fed officials, like many economists, support tax reform if for no other reason that it's doctrine in the economics world that taxes distort decision making. Any kind of reform that reduces those distortions — for example by reducing write-offs or simplifying the code — will be seen as a positive for growth. Deregulation gets good reviews for similar reasons.
But many Fed members have made no secret that they see the full package of President Donald Trump's economic proposals as a potential mixed bag, in part because it runs afoul of other basic tenets of economics.