Fed raises interest rates, says two more hikes likely in 2018
Jun 14 2018
The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the USA central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.
Policymakers' fresh economic projections, also issued on Wednesday, indicated a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously. The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target.
They see another three rate increases next year, a pace unchanged from their previous forecast.
The Fed announced the rate rise at the close of a two-day meeting in Washington. And that means higher interest rates on plastic. The move reflects the economys resilience, the job markets strength and inflation thats finally nearing the Feds target level.
The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective". For 2020, the Fed foresees a median rate of 3.4 per cent. Should the Fed's expectations prove accurate, its policy would then be meant to slow the economy.
The central bank also lifted its growth forecast to 2.8 percent this year, up a small amount from its projection of 2.7 annual growth in March. But it noted that inflation was edging near its 2 percent target after years of remaining undesirably low. After years in which the economy expanded at roughly a tepid 2 per cent annually, growth could top 3 per cent this year. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late a year ago. Not since 1969 has the jobless rate been lower.
The unemployment rate is seen falling to 3.6 percent in 2018, compared to the 3.8 percent forecast in March. It then raised rates once in 2015, once in 2016, three times in 2017 and now twice this year. When the Fed tightens credit, it aims to do so without derailing the economy. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001.
The Fed's twin mandate is to bolster employment while controlling inflation, and in the current environment more rate rises appear inevitable.
This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average. All those countries have vowed to retaliate against any US tariffs with their own penalties against USA goods.
While many economists worry about a trade war harming growth, the Fed did not mention trade concerns in its statement.