Federal Reserve bumps up United States interest rate, signals two more in 2018

Cornelia Mascio
Giugno 14, 2018

Interest rates are going up again as the economy gets hotter.

The Federal Reserve took note of a resilient US economy Wednesday by raising its benchmark interest rate for the second time this year and signaling that it may step up its pace of rate increases.

This marks the seventh time the Fed has hiked rates since 2015, per Reuters, and is part of a slow process to return rates to normal levels.

To be sure, the Fed is not inclined to hike rates any more than gradually after years of mostly over-optimistic predictions for inflation and economic growth, and disappointing wage gains of around 2.5 percent annually.

A majority of Fed officials also forecast two more rate rises this year, one more than previously predicted.

Announcing the decision to increase its target for the fed-funds rate to a range of 1.75% to 2%, the Fed described the U.S. jobs market as "strong" and said economic activity had been rising at "a solid rate". "Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly". The dollar pared losses against a basket of currencies.

Federal Reserve Chairman Jerome Powell announced Wednesday that as from January 2019, he will hold press conferences after every policy meeting. "The trajectory of United States inflation or the broader U.S. economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments.

Even so, raising rates too quickly could prevent vulnerable Americans and pockets of the country still struggling from reaping the benefits of a strong economy.

Growth is also expected to stay close to nearly 3 percent of GDP through the year, and Fed officials are eager to prevent the economy from overheating. 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.

U.S. unemployment dropped to 3.8% in May, its lowest level since April 2000 and one of the lowest levels since the second world war.

The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy.

The Fed said its policy of further gradual rate increases will be "consistent with a sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2% objective". Powell has repeatedly played down the dot plot as a guide to future interest rates, though investors continue to focus on it. The step was needed, the Fed said, to be sure rates stay within the intended boundaries.

Trump has slapped tariffs on steel and aluminum imports, has threatened additional tariffs on Chinese imports and has directed his administration to consider further duties on imported cars.

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