Fed Raises Rates, Three More Hikes Expected in 2018

07 April, 2018, 00:43 | Author: Martin Tyler
  • Federal Reserve chairman Jerome Powell spoke Wednesday about the latest increase in interest rates

The dollar struggled against its peers on Thursday after the Federal Reserve maintained the view that it would raise interest rate three times in 2018 instead of the four that some currency bulls had hoped for.

Federal Reserve officials, meeting for the first time under Chairman Jerome Powell, raised the benchmark lending rate a quarter-point and forecast a steeper path of hikes in 2019 and 2020, citing an improving economic outlook.

Along with raising their growth forecasts, they declared in a statement that "economic activity has been rising at a moderate rate" and that "job gains have been strong in recent months".

JOHN YDSTIE, BYLINE: In his first news conference since taking the reins as Fed chief from Janet Yellen, Powell gave an upbeat assessment of the USA economy. "On the other side, if we raise rates too quickly, inflation then really doesn't get sustainably up to two per cent, and that will hurt us going forward", he said.

"A number of participants in [the] FOMC did bring up the issue of trade", Powell said on Wednesday, adding that participants have been approached by members of the business community who have expressed fears of more widespread retaliation.

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The Fed has indicated that it expects two further (0.25%) interest rate hikes this year, with faster rises in the pipeline in 2019.

"This a new Fed chairman starting with a bit of a hawkish tone as he takes leadership".

"Job gains have been strong in recent months, and the unemployment rate has remained low", the FOMC said.

The Fed lifted up its estimate of the long run neutral interest rates to 2.9% from 2.8% in December. The Fed also outstandingly augments its prediction for USA growth the two successive years. Consumers would be wise to make similarly independent decisions by shopping for the best interest rates on savings accounts, certificates of deposit, and mortgages.

The committee's forecast for the long-run sustainable growth rate of the economy was unchanged at 1.8%, suggesting policy makers are still skeptical of the effect of tax cuts on the economy's capacity for growth.

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Hence, in its assessment of future growth prospects, the central bank increased its median forecast for US GDP to 2.7 percent (from 2.5 percent earlier) for 2018, and 2.4 percent (from 2.1 percent earlier) for 2019.

Analysts are divided on exactly how many increases will occur this year. They also predicted slightly lower unemployment by the end of this year.

Officials also increased their expectations for economic growth this year in the United States, declaring that "the economic outlook has strengthened in recent months".

The Fed said it expects to raise rates twice more this year.

"I read this as the Fed is still having trouble rectifying moderate growth and subdued inflation", said economist Lindsey Piegza of Stifel.

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