Fed Raises Interest Rates, Signals Faster Hikes on the Way

13 June, 2018, 23:29 | Author: Billie Castillo
  • Fed lifts rates amid stronger inflation, drops crisis-era guidance

This report, released by Federal Reserve, includes the FOMC's projection for inflation and economic growth over the next 2 years and, more importantly, a breakdown of individual FOMC member's interest rate forecasts.

Federal Reserve Chair Jerome "Jay" Powell said job gains are boosting income and confidence, while foreign expansion and tax cuts support additional growth. The move reflects the economy's resilience, the job market's strength and inflation that's finally nearing the Fed's target level. 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. In the United Kingdom, the Bank has stopped actively buying financial assets and interest rates are up a little from their lows.

The central bank said it expects two more rate hikes this year, indicating an increasingly positive view of the economic expansion.

Before we get into the mechanics of what both are saying, financial conditions, according to the St Louis Fed, "summarise different financial indicators and, because they measure financial stress, can serve as a barometer of the health of financial markets".

"The bond market has the belief that, as the Fed continues to tighten, it's going to lead to a slowing of the economy", said Peter Boockvar, chief investment officer of Bleakley Financial Group. The step was needed, the Fed said, to be sure rates stay within the intended boundaries. While a few said the curve had become "a less reliable signal" of future activity, several stressed the link between inversions and coming economic downturns. The projections show inflation rising 2.1% for the next three years. After years in which the economy expanded at roughly a tepid 2 percent annually, growth could top 3 percent this year.

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Fed officials have begun to debate publicly how close the economy is to overheating. The average rate for a 30-year fixed mortgage hit a high of 4.8 percent in the last week of may before dropping slightly.

The unemployment rate is 3.8%, the lowest since 2000 and tied for the lowest reading since 1969.

While many economists worry about a trade war harming growth, the Fed did not mention trade concerns in its statement. All those countries have vowed to retaliate against any USA tariffs with their own penalties against US goods.

The Fed's meeting this week is to be followed by policy meetings of two other major central banks - the European Central Bank on Thursday and the Bank of Japan on Friday.

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