Bank stocks surge after the Federal Reserve raises rates

Marcus Newton
March 22, 2018

However, its forecasts point to an extra increase in 2019 to three in total and it now sees terminal rates at 3.4% in 2020 as opposed to 3.1%. On the other hand, modest wage pressures despite an extended period of low unemployment could persuade the Fed to lower its estimate of the sustainable jobless rate.

But he added: "Given how few people there are left to fill the jobs being created by the United States economy and with the unemployment rate forecast to continue to fall, wage demands are bound to increase over the coming months, so it's impossible to rule completely rule out a fourth rate hike before Christmas".

The U.S. unemployment rate, now at a 17-year low of 4.1 percent, is expected to keep falling to 3.8 percent at the end of this year and 3.6 percent at the end of 2019, which would be the lowest rate in a half-century. The average credit card rate is already a full percentage point higher than it was a year ago and is likely to jump up more this year as the Fed hikes rates further. The Fed said overall inflation was below 2 percent and expects it to stabilize around the 2 percent mark over the medium term. They raised their estimate for growth in 2019 to 2.4 percent, up from 2.1 percent.

The new target range for the federal funds rate is 1 1/2 percent to 1 3/4 percent.

Wednesday's rate hike is the sixth time the Fed has lifted interest rates since the economy collapsed in 2008. This week, Powell presided over a Fed policy meeting for the first time since becoming chairman.

The economic outlook has strengthened in recent months. Some economists expected the Fed would signal a fourth hike this year.

Markets will also be hyper-focused on this year's rate forecast, which could move higher.

And the rate at which Americans are taking on more debt is rising across the board, according to a recent study from Chicago-based credit bureau TransUnion.

The Fed is widely expected to raise the benchmark lending rate Wednesday.

The policy move leaves central bankers with room to assess whether they will need to raise rates faster to prevent the economy from overheating. Since it began bumping up rates back in 2015, the Fed has now made six increases.

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Forecasts for all of 2018, though, still predict an acceleration later this year, driven in part by the stimulative effect of the sweeping tax cuts President Donald Trump pushed through Congress in December and a budget agreement last month to raise government spending by $300 billion over two years.

The employee of a currency exchange shop shows US dollar banknotes after counting them, in Ciudad Juarez, Mexico November 10, 2017.

The U.S. dollar also hit its session low after the Fed decision.

Now we come to a particularly important projection on interest rates.

However, the range of estimates for the federal funds rate reveal officials are split nearly exactly down the middle with eight expecting no more than three rate hikes this year and seven projecting four moves or more.

The outcome of the Fed meeting is due at 18.00 GMT (14.00 Eastern Time), so expect some volatility in the Dollar exchange rate complex.

In its statement the Fed said the economy had been expanding at a "moderate" rate and noted a slowdown in household and business investment.

The Dow climbed 116.36 points or 0.5 percent to 24,727.27, the Nasdaq rose 20.06 points or 0.3 percent to 7,364.30 and the S&P 500 ended up 4.02 points or 0.2 percent to 2,716.94.

Federal Reserve Chairman Jerome Powell arrives or a news conference following the Federal Open Market Committee meeting in Washington, Wednesday, March 21, 2018.

Other reports by MaliBehiribAe

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