Published: Sat, April 07, 2018
Finance | By Cynthia Curry

Fed rate hike: Matching confidence in economic outlook is assuring

Fed rate hike: Matching confidence in economic outlook is assuring

The Federal Reserve on Thursday increased the benchmark interest rate a quarter point to a target range of 1.5 per cent to 1.75 per cent, citing a stronger USA economic outlook in recent months.

Stocks greeted the Fed's interest-rate increase with volatile trading Wednesday, as the central bank delivered the expected hike but Chairman Jerome Powell gave the market some angst.

The U.S. Federal Reserve on Wednesday raised the benchmark interest rate by 25 basis points and signaled two more rate hikes in 2018, citing "strengthened" economic outlook in recent months. Median fed funds rate is seen at 2.9 percent for 2019 and 3.4 percent in 2020, compared to 2.7 percent and 3.1 percent, respectively, projected in the December 2017 meeting.

But there was a hawkish tone in some of the Fed's observations, and Powell for the first time said the Fed expects above-target core inflation of 2.1%.

Documents issued by the central bank show that its monetary policy committee has a strong consensus for at least two more rate hikes this year, with growing sentiment that the rate could approach 2.5% by the end of 2018. The actions mean consumers and businesses will face higher loan rates over time. His basic message was that the fiscal policies will continue to improve economic growth without an outsize increase in inflation. The 2019 estimate rose to 2.4 percent from 2.1 percent in December.

RBI monetary policy: Highlights for the financial year 19
The directive is aimed at having "unfettered access to all payment data for supervisory purposes", the central bank said. RBI issued its first warning in December 2013, a second in February 2017 and the most recent in December 2017.

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. Despite the stronger growth, lower unemployment rate and higher interest rate forecast, the inflation projection was the same.

The target range for the federal funds rate was increased by a quarter percentage point to 1.5 percent to 1.75 percent, the highest since the 2008 collapse of Lehman Brothers Holdings Inc. froze credit markets worldwide.

YDSTIE: And the members of the Fed's policymaking committee boosted their forecasts for growth in 2018, raising it to 2.7 percent - up from their December estimate. The more important question is the outlook for future rate hikes, which, in turn, depends on the Fed's expectations for economic growth.

Yet, Powell told reporters that even with rising interest rates, the world's largest economy is "healthier than it has been since before the financial crisis". Price gains are still expected to stabilize around the Fed's 2% target over the medium term, the FOMC said.

Trump Tariffs: Who Stands to Benefit? Currently, news conferences come after only four of the Fed's eight meetings each year. Policymakers predict the unemployment rate to fall to 3.8 per cent this year and 3.6 per cent next year. Powell noted: "There's no sense in the data that we're on the cusp of an acceleration in inflation".

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