Fed hikes interest rates again, raises outlook for more increases in 2018

Javier Stokes
June 15, 2018

The federal government drastically upgraded its forecasted 2018 economic outlook Wednesday, saying the U.S. economy was rising at a "solid" rate; an increase from its previous prediction of "moderate" growth.

The US Federal Reserve has voted to raise the target for its benchmark interest rate by 0.25%, citing solid economic expansion and job gains.

The Federal Reserve raised its key rate by 25 basis points and signaled two more rate hikes this year.

Powell called the situation "a bit of a puzzle" during a press conference following the FOMC's two-day policy meeting on Wednesday.

The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the United States central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.

At a news conference, Powell sought to portray the Fed's actions as evidence mainly that the economy is doing well and not that the central bank is eager to accelerate its rate increases.

The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 percent objective".

The change will start in January following the meetings that are scheduled roughly once every six weeks, to give the Fed "more opportunities to explain our actions", Mr Powell told reporters. "This is a rare occurrence where the chairperson can help influence and shape the overall dot plot message", Ruskin, the global head of G10 FX strategy, said in a preview.

"We don't think that the natural rate of unemployment - it's not one of those variables that moves around a lot", Powell said Wednesday.

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At the end of March, the average interest rate charge on cards, according to the Fed, was 15.32%, an 18-year high.

Economists generally expect growth to remain above 3 percent through year end, while Fed policymakers raised their forecast a touch to 2.8 percent on Wednesday.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 per cent in 2020 before dropping to 2.9 per cent in the longer run.

The FOMC's economic growth forecasts were little changed, with 2018 GDP seen rising 2.8 percent rather than 2.7 percent but unchanged at 2.4 percent in 2019 and two percent in 2020.

Benchmark 10-year US Treasury notes last fell 6/32 in price to yield 2.9774 percent, from 2.957 percent late on Tuesday.

Interest rates are going up again as the economy gets hotter. The BoC will meet in July with a growing probably of a rate hike announcement.

That is a welcome step-up from the roughly 2-percent growth averaged throughout the recovery, which was plagued by a series of crises overseas and uncertainties at home, delaying the Fed's tightening plans.

There are rising concerns about trade more generally and the potential risks to the economic outlook.

"In view of realised and expected labour market conditions and inflation, the Committee made a decision to raise the target range for the federal funds rate to 1-3/4 to 2 per cent".

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