Fed Raises Rates, Signals Two More In 2018

Bank of Korea Gov. Lee Ju-yeol

Bank of Korea Gov. Lee Ju-yeol

The latest set of quarterly forecasts showed that policy makers were divided over the outlook for the benchmark interest rate in 2018.

"In view of realized and expected labor market conditions and inflation", the Fed chose to raise the target range for the federal funds rate to 1.5 to 1.75 percent, the central bank said in a statement after concluding a two-day meeting.

In announcing the rate hikes, the FOMC said it found that the US economy has continued to grow moderately since the committee's last meeting in January.

Wednesday's increase was the Fed's first major decision since Jerome Powell replaced Janet Yellen as its chair.

The Federal Reserve is the central bank of the U.S. It oversees 12 district banks, which together are responsible for the monetary policy of the U.S.

In October, the Fed began reducing its unprecedented bond holdings of more than USD4 trillion, by USD20 billion a month, a process that is "proceeding smoothly", Powell said. Fed representatives now utter an upsurge from their former prediction done prior to the Republican tax cuts was concluded.

According to the Washington Post, "Americans should expect even faster growth and lower unemployment ahead, Fed officials said".

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 higher rates are likely to be welcomed by savers but not by borrowers, who will face more expensive loan terms.

'The economic outlook has strengthened in recent months.

Unusually low inflation, combined with slow economic growth, helps explain why the Fed has steadily reduced its "longer run" fed funds target since 2012.

In its latest forecast, the Fed predicted the USA would grow 2.7% this year and 2.4% next year - well above the 1.8% pace that the central bank views as consistent with stable inflation.

A healthy job market and a steady if unspectacular economy have given the Fed the confidence to think the economy can withstand further increases within a still historically low range of borrowing rates. Policymakers predict the unemployment rate to fall to 3.8 per cent this year and 3.6 per cent next year.

Despite declining 0.8 percent leading up to the Fed's announcement, the price of silver rose from US$16.42 per ounce pre-confirmation to reach US$16.56 after the hike was made official. Yes, there was some downgrading of the current conditions, indicating that the "growth rates of household spending and business fixed investment have moderated rom their strong fourth-quarter readings". For now, his Fed is on track to raise rates at least twice more this year and possibly three times.

Shortly before Powell spoke, the Federal Open Market Committee (FOMC) raised interest rates for the sixth time since December 2015.

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