Monday, 24 September, 2018

Fed raises rates, Powell talks future plans

Fed raises interest rates and signals faster hikes on the way	 	 	 			The Federal Reserve building Fed raises interest rates and signals faster hikes on the way The Federal Reserve building
Nellie Chapman | 14 June, 2018, 05:41

The Federal Reserve on Wednesday announced that it made a decision to raise interest rates, and it signalled plans to do so more times than expected this year.

The Federal Reserve announced today that it would raise the target range for the federal funds rate by a quarter of a point.

It was the Fed's seventh rate increase since it began tightening credit in 2015, and it followed an increase in March this year.

Updating their quarterly forecasts, officials projected the policy rate at 3.1 per cent at the end of 2019, according to their median estimate - compared with 2.9 per cent seen in March - and 3.4 per cent in 2020, unchanged from the prior forecast.

In the currency market, the dollar had erased all its post-Fed gains as traders' focus quickly shifted to the European Central Bank's policy meeting later in the day. The projections show inflation rising 2.1% for the next three years.

USA unemployment is already at 3.8 per cent, the lowest since 2000, and the Fed believes it will fall to 3.6 per cent by the end of the year, which would be the best rate since the 1960s. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher. After keeping interest rates low for years to boost growth, the central bank is now moving rates back to what economists say is a neutral position.

Projections from the Fed's March meeting suggest a benchmark rate of 2.1 percent at end of 2018, based on the median forecast of central bank policymakers, which would mean three rate hikes in total this year.

The US economy continues to strengthen, the Fed indicated, and it no longer needs the historically low interest rates that were put in place in the aftermath of the financial crisis to stimulate growth.

In addition to a new dot plot, the Fed updated its forecasts for economic growth and inflation.

The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat.

While the course of interest-rate hikes remains gradual, the slightly more aggressive pace shows officials see more urgency to tighten policy, as unemployment already fell in May to the level they had forecast for year-end.

But for now, the Atlanta Fed estimates the US economy is roaring at a 4.6 percent rate, a level it reached only twice since the recession.

A global trade war would risk cutting into US economic growth by depressing American export sales and raising inflation by making consumers and businesses pay more for imports.