Federal Reserve raises USA interest rates again

Marcus Newton
June 14, 2018

The Federal Reserve raised interest rates for the second time this year, taking the range of its Federal Funds Rate from 1.75pc to 2pc, up by 0.25 percentage points.

Most officials also expect the Fed will have to raise rates at least three times in 2019 and then at least once in 2020.

The Fed announced the rate rise at the close of a two-day meeting in Washington.

Eighteen of the 23 dealers participated in the poll, and 15 of those respondents saw two more hikes this year.

Projections released after the Fed's two-day meeting in Washington show policymakers expect the U.S. economy will grow 2.8% this year, while unemployment falls to 3.6%.

But Powell added, "For now, we don't see that in the numbers at all".

In its updated forecasts, the Fed envisions stronger growth this year - 2.8 per cent, up from the 2.7 per cent it predicted in March. The Fed expects unemployment to fall to 3.6% this year, and, said Powell, "Most people who want to find jobs are finding them".

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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. For 2020, the Fed foresees a median of 3.4 percent.

Also notable was that the Fed deleted about 80 words of its statement that said it expected the economy to "evolve in a manner that will warrant further gradual increases" in rates.

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

A gradual rise in inflation is coinciding with newfound economic strength. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late past year. But that exorbitant rate is likely to go up to 15.57% within two billing cycles, CompareCards says, as lenders pass along the higher rates to clients.

"The decision you see today is another sign that the economy is in great" shape, Powell told reporters following the decision. Not since 1969 has the jobless rate been lower. When the Fed tightens credit, it aims to do so without derailing the economy. Ten years ago, the Fed cut interest rates to near zero in an effort to boost the economy and stem the deepening financial crisis and recession.

Yields earlier swung between gains and losses as investors awaited guidance about whether policy makers see enough pressure on prices to increase their projected pace of interest rate increases, or whether concerns about the ability of the economy to sustain its growth in coming years might lead to a pullback in forecasts of rate increases in coming years, analysts said.

The economic expansion has survived for nine years and is now the second-longest in history. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on USA imports, which some studies show could cost the US close to 200,000 jobs.

Other reports by MaliBehiribAe

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