Federal Reserve Raises Key Interest Rate and Signals More Increases May Come
14 June, 2018, 05:41 | Author: Eric Barnett
Wednesday's decision - the sixth quarter-point increase in 18 months, raising the benchmark federal funds target rate to a range of 1.75 per cent to 2 per cent - was a unanimous 8-0. Total rate hikes projected for 2018 is up to four from three previously. The Fed previously nudged rates up in March.
The latest increase will bring the benchmark federal-funds rate to a range between 1.75% and 2%.
"Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly", the Fed wrote in its statement on Wednesday announcing the interest rate hike.
US Treasury yields rose after the release of the statement while US stocks were trading marginally lower.
In the currency market, the dollar was relatively well bid ahead of the Fed's meeting.
Federal Reserve Chairman Jerome Powell speaks at a news conference following the Federal Open Market Committee meetings in Washington, U.S., March 21, 2018. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing worldwide trade disputes could slow US growth.
Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory. The Fed anticipates that inflation will be 2.1% in 2019 and 2020, which is a little over its target rate of 2% through 2020, but is viewed as manageable.
Projections released after the Fed's two-day meeting in Washington show policymakers expect the USA economy will grow 2.8% this year, while unemployment falls to 3.6%.
The Fed's twin mandate is to bolster employment while controlling inflation, and in the current environment more rate rises appear inevitable.
Some emerging market currencies stayed under pressure on worries higher US rates could prompt fund outflows from emerging markets to the United States. Ahead of the announcement, markets were pricing in a almost 100% chance of a rate hike. Rates for vehicle loans and variable-rate mortgages are also likely to increase.
However, higher rates would help savers earn more interest on their deposits.
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Scattered thunderstorms are expected to develop throughout the afternoon as a cold front moves through the region. The greatest threats from these storms will be heavy rain, gusty wind over 50 miles per hour and large hail.
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