Commission on Government Forecasting and Accountability
HOUSE
Donald Moffitt, Co-Chair
SENATE
Donne Trotter, Co-Chair
Skip Navigation Links
May 2016 Monthly Briefing
ECONOMY: AWATING THE NEXT INTEREST RATE HIKE
Edward H. Boss Jr., Chief Economist

The Federal Reserve raised the key federal funds rate target range by ¼% last December from 0 to ¼% that had existed since late 2008 and said that economic conditions would warrant only gradual increases. The long-run goal of monetary policy is to promote maximum employment, stable prices, and moderate long-term interest rates. It has long been recognized that monetary policy actions influence economic activity and prices with a lag, i.e. while lowering rates to stimulate activity, inflation is ignited and once started is difficult to contain. Thus, it has been left to fiscal policy that can have a more direct influence on the economy to make short-term economic adjustments. However, with sky rocketing debt accumulated through past stimulative spending programs in the context of an economy emerging from the worst recession since the Great Depression of the 1930s, it was monetary policy that was turned to as a remedy.

With the economy continuing to advance, albeit modestly, and jobs improving, a third long-term goal is stable prices. Prolonged periods of monetary ease often have led to rising inflation that have been difficult to reign in. Now with consumer prices beginning to rise, the Federal Reserve may be on the way to achieving its 2% growth target while easing earlier fears of deflation. Given these trends, the stage appears to be set for the Fed to take another step toward normalizing interest rates by increasing the targeted federal funds target range by another ¼%.

REVENUE: MAY REVENUES DROP ON WEAK FEDERAL SOURCES AND LOWER TRANSFERS
Jim Muschinske, Revenue Manager

Overall base revenues fell $366 million in May when compared to the same month last year. Extremely weak federal sources comprised the bulk of the decline, but were exacerbated by lower transfers stemming from last year’s fund sweeps.
************
Through May, base receipts are down $5.342 billion. The drop reflects comparatively lower income tax rates for the first part of the fiscal year, the one-time nature of some pharmaceutical court settlements recovered by the Attorney General‘s Office last fiscal year, no fund sweeps year to date, and weak performance of federal sources.