Published: Thu, June 14, 2018
Economy | By

Fed raises rates, Powell talks future plans

Fed raises rates, Powell talks future plans

It is the seventh time the bank has raised rates since 2015. The number viewing three or fewer hikes as appropriate fell to seven from eight.

Investors were expecting the increase.

Federal Reserve Chairman Jerome Powell spoke, March 21, following the Federal Open Market Committee meeting in Washington.

The central bank raised its key short-term rate by a modest quarter-point to a still-low range of 1.75 percent to 2 percent. Other changes included referring to "further gradual increases" instead of "adjustments".

This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average.

The central bank had projected three to four rate hikes this year as the economy continues to pick up steam and inflation nears the 2% target rate thanks to strong labor market conditions. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does. Risks to the economic outlook appear roughly balanced. Government data show that hourly earnings are rising at an annualized rate of 2.8 percent, and even a touch more for lower-income workers.

"Household spending has picked up while business fixed investment has continued to grow strongly", the Fed said.

"In view of realized and expected labor 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 percent", read a portion of a Federal Open Market Committee statement released Wednesday afternoon.


Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m., his second since taking the helm from Janet Yellen in February.

In a technical move, the central bank also chose to set the interest rate it pays banks on excess reserves - its chief tool for moderating short-term interest rates - at just below the upper level of its target range.

The central bank's new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast. The jobless rate is already the lowest since 2000. This would leave rates between 3.25 percent and 3.5 percent by the end of 2020. Estimates of the long-run sustainable unemployment rate were unchanged at 4.5 per cent.

The Federal Reserve is guiding a USA economy that is as close to ideal as it could have dreamed a decade ago, when the darkest days of the recession forced it to take big risks to protect workers, banks and economies around the world from further devastation.

The core PCE index, which excludes food and energy and is seen by officials as a better gauge of underlying price pressures, is forecast to reach 2 per cent this year and 2.1 per cent in 2019 and 2020.

The Wall Street Journal reported on the change earlier this week. They signaled previously that they wouldn't overreact if inflation overshot the target, but they haven't said how much of an overshoot they will tolerate, or for how long.

The median estimate for economic growth this year rose to 2.8 per cent from 2.7 per cent in March, with projections unchanged for 2.4 per cent in 2019 and 2 per cent in 2020.

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