Fed raises US interest rates and growth forecasts

Fed raises US interest rates and growth forecasts

The Federal Reserve is raising its benchmark interest rate to reflect a solid USA economy and signalling that it's sticking with a gradual approach to rate hikes for 2018 under its new chair, Jerome Powell.

Central bank officials said Wednesday they would raise their federal funds target rate by a quarter percentage point to a range between 1.5% to 1.75%.

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.

Although the anticipated Fed hikes are expected to have a muted impact on fixed-rate mortgages, other loan products, including home equity lines of credit and adjustable-rate mortgages, could see significant rate increases.

The ripple effect of the Fed rate hike may be felt in India, too.

For one thing, the Fed raised its projection on where it expects its benchmark rate to end up in the long run. The market now expects three hikes for 2018, and that remained the baseline forecast, but at least one more increase was added in the following two years.

The economic data are improving in several areas, including the job market. If the FOMC assesses that the growth appears stronger, it will move more aggressively.

The latest SEP also shows the Fed upped its outlook for GDP growth in 2018 to 2.7%, an increase from 2.5% in its December forecasts. Prior to that, the central bank held rates near zero for seven years to encourage borrowing and spending and help support the recovery from the Great Recession.

The Fed statement said monetary policy continues to provide stimulus to the economy and repeated that even with "further gradual adjustments. economic activity will expand at a moderate pace".

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"Barring a very significant and unexpected weakening in the outlook, we do not intend to alter this programme", he said.

Some even anxious inflation could rise well above the Fed's target if the economy got too hot.

The Trump administration stoked fears of a tit-for-tat trade war earlier this month when it confirmed tariffs on steel and aluminium products from overseas.

"Trade policy has become a concern going forward for that group", the chairman said, referring to business leaders. When the statement says something new, it should be viewed as important. More specifically, if the Fed's goal is to normalize rates, what does it consider normal?

Most investors think Powell has enough experience to do the job.

Copyright 2018 NPR. To see more, visit http://www.npr.org/. CD rates and money market rates haven't done much better.

The meeting was the first major test for Powell, whom President Donald Trump tapped to replace Janet Yellen when her term as Federal Reserve Chair expired last month.

JEROME POWELL: The economic outlook has strengthened in recent months.

Ready for more fancy fiscal policy talk?

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