Federal Reserve officials expect reductions in corporate and personal taxes to boost consumer and business spending, though they remain unsure of the impact of the new tax law, according to minutes released Wednesday from their December meeting.
Members of the Federal Open Market Committee increased their expectations for 2018 GDP growth from 2.1 percent, or about trend since the post-financial crisis recovery, to 2.5 percent.
"Most participants indicated that prospective changes in federal tax policy were a factor that led them to boost their projections of real GDP growth over the next couple of years," the minutes stated.
The FOMC is the Fed's monetary policymaking arm. The committee at the meeting voted to increase its benchmark interest rate a quarter point to 1.25 percent to 1.5 percent. The rate is tied to most consumer credit rates.
Much of the discussion as reflected in the minutes show strong observations on the economy. The meeting summary points to significant improvements in payrolls as the unemployment rate dipped to 4.1 percent, and noted that industrial production "increased briskly."
Holiday spending was "strong" in several Fed districts, as "many participants expected the proposed cuts in personal taxes to provide some boost to consumer spending." In addition, officials observed that stock market prices improved as well, part of a year in which the S&P 500 rose about 20 percent.
At least some of the credit, particularly for the market gains, went to anticipation of the Republican tax overhaul. Congress had not yet passed the measure when the FOMC met Dec. 12-13. The plan, now law, slashes the corporate tax rate from 35 percent to 21 percent and lowered income tax brackets for most payers.