US Central Bank Lifts Rates Amid Stronger Inflation, Drops Crisis-Era Guidance

Jerome Powell

Jerome Powell

Should the Fed's expectations prove accurate, its rate policy would then be meant to slow the economy. The most immediately affected will be credit-card interest rates, which are subject to near-instantaneous revision to track the federal funds rate.

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. All it would take to tilt the new dot plot in favor of four rate hikes would be one official changing their opinion.

Wednesday's action, which was widely expected, was the second Fed rate hike this year - and the seventh since it began boosting them in 2015. The Fed has indicated that it is likely to raise rates three or four more times this year.

USA growth is also getting a boost from $1.5 trillion in tax cuts and a $300 billion increase in federal spending, with inflation at the central bank's 2 per cent target for two months.

Fed Chairman Jerome Powell is due to give a press conference at 2:30 pm (1830 GMT) to explain the thinking behind the rate increase and outlook.

Fed Chairman Jerome Powell said at a news conference that the U.S. economy has strengthened considerably since the 2007-08 recession and is in "great shape". It kept borrowing costs that low after the financial crisis to encourage businesses and consumers to spend and grow the economy.

The FOMC's economic growth forecasts were little changed, with 2018 GDP seen rising 2.8 per cent rather than 2.7 per cent, but unchanged at 2.4 per cent in 2019, and 2 per cent in 2020.

They now see the jobless rate dropping to a 50-year low of 3.5% by. The committee also cut their forecast for unemployment.

"Economic activity has been rising at a solid rate", the FOMC said in its statement.

While a few items remain on the USA central bank's wish list, such as bigger gains in wages and productivity, the main goals of stable prices and full employment are effectively met.

Powell said there were no signs that trade tensions were having a big impact on growth and that the somewhat tighter policy path in 2018 shouldn't deter continued strong job creation.

The latest government data indicate inflation ticking up recently very close to the Fed's 2 percent target, which policymakers acknowledged in their statement Wednesday. "Powell seems comfortable exploring the lower reaches of the unemployment rate given few indications it is resulting in stronger inflation pressures". So-called core inflation - which excludes volatile items like energy and housing - is now 2.2 percent, around the level the Fed is looking for.

"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability".

The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target.

Yields have been climbing this year, as markets position for a relatively more aggressive Fed amid inflation concerns.

Recommended News

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.