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

14 Juin, 2018, 03:13 | Auteur: Auguste Feret
  • Fed Rates Increased for Second Time This Year

The central bank also lifted its growth forecast to 2.8 per cent this year, up a small amount from its projection of 2.7 per cent annual growth in March. The number viewing three or fewer hikes as appropriate fell to seven from eight. In its statement the central bank said that "economic activity has been rising at a solid rate".

"In view of realized and expected labor market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 percent", the Fed said in a statement.

The statement omitted previous language saying that the main rate would remain "for some time" below longer-run levels. Inflation by the Fed's preferred gauge would hit its 2 percent target this year and edge up to 2.1 percent over the next two years. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments.

After nine years of steady if uneven recovery, the United States is now growing at a pace topping 4 percent, unemployment is as low as it has been this century, and inflation has safely edged up toward an official target.

A gradual rise in inflation is coinciding with new-found economic strength.

"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.

Following its two-day monetary policy meeting, the Federal Reserve raised interest rates by 25 basis points Wednesday, in line with expectations.

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"The economy is doing very well", Powell said at a news conference after the meeting. Powell has repeatedly played down the dot plot as a guide to future interest rates, though investors continue to focus on it.

In the U.S., Fed officials are setting policy for an economy that's being boosted by $1.5 trillion in tax cuts and a $300 billion increase in federal spending, while unemployment has fallen to levels that match the lowest since 1969. US payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years. Inflation expectations are slightly higher this year compared to March's forecast of 1.9%. Estimates of the long-run sustainable unemployment rate were unchanged at 4.5 per cent.

The Fed anticipates that inflation will overshoot its 2% target this year; in March, officials saw that happening only in 2020.

The Fed now envisions stronger growth this year - 2.8 percent, up from the 2.7 percent it predicted in March.

Traders correctly foresaw the June rate hike, the central bank's second this year, and had been quite confident of a rate hike in September. After years in which the economy expanded at roughly a tepid 2 per cent annually, growth could top 3 per cent this year.

USA companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 per cent this year. The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 per cent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth.

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