Skip to comments.Fed hikes rates, points to two more increases by year's end
Posted on 06/14/2018 7:33:31 AM PDT by Red Badger
The Federal Reserve hikes its benchmark short-term interest rate a quarter percentage point. The Fed says in a statement that economic growth has been "rising at a solid rate," an upgrade from "moderate" in May. The central bank points to two more hikes, which would bring the 2018 total to four increases.
The Federal Reserve hiked its benchmark short-term interest rate a quarter percentage point Wednesday and indicated that two more increases are likely this year.
The move pushes the funds rate target to 1.75 percent to 2 percent. The rate is closely tied to consumer debt, particularly credit cards, home equity lines of credit and other adjustable-rate instruments.
In an unusually terse statement that ran just 320 words, the Federal Open Market Committee changed multiple phrases from its previous missives, pointing to a more optimistic view on economic growth and higher inflation expectations.
Though the statement contained less than half the words of some of the committee's typical communiques, there was a lot to unpack in the language.
The committee said economic growth has been "rising at a solid rate," an upgrade from "moderate" in May. The unemployment rate has "declined," as opposed to "stayed low," and household spending "has picked up," an upgrade from "moderated."
With that in mind, the committee said two more rate hikes were appropriate, bringing the 2018 total to four increases. Its first hike this year was in March.
"The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term," the statement said.
That sentence itself featured multiple instances of more hawkish language.
The committee previously had characterized rate hikes as "gradual adjustments" rather than "increases," and the "sustained expansion" portion was completely new.
However, the statement twice retained language that the Fed had a "symmetric" 2 percent inflation target, indicating a tendency to let price pressures run a little hot before putting the clamps on growth
With the 0.25 percentage point increase already priced in, financial markets were looking for how aggressive the FOMC would be in setting monetary policy for the rest of the year.
Markets had been waffling over expectations for a fourth rate hike this year the FOMC also increased the funds rate target in March and prior to the meeting were pricing in a 46.5 percent chance. The latest projections from committee members indicate the funds rate to rise to 2.4 percent by the end of the year, a 0.3 percentage point increase from the March forecast.
Stocks edged lower after the FOMC release while government bond yields nudged higher.
"They telegraphed it. The only incremental surprise is just that the now expect four rate hikes, and I suppose that's why the market is a little weaker on that news," said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management. That accelerates the move from the Fed's being neutral to more restrictive." Economic forecast
Committee members indicated in the update to their quarterly economic forecast that they expected core inflation to reach the Fed's 2 percent target by the end of the year, and now see economic growth hitting 2.8 percent for the full year.
Both the expectations for gross domestic product and personal consumption reflected a 0.1 percentage point increase from the last estimates in March and were enough to push the so-called dot plot of individual committee member rate expectations to a more aggressive position. Three committee members moved their expectations higher for rates.
In addition to the upward projections for GDP and inflation, committee members also cut their forecast for unemployment. They now see a 3.6 percent rate by year's end, compared with the current 3.8 percent, which was the full-year projection in March.
The committee also indicated it continues to expect three more rate hikes in 2019, even with the fourth one this year.
Despite the added hike, officials still see the long-run funds rate at 2.9 percent after peaking at 3.4 percent in 2020. The extra hike, though, pushes the rate past "neutral" in 2019, a little sooner than anticipated. They still see GDP rising 2.4 percent in 2019 and 2 percent the year after, and longer-range growth at 1.8 percent.
The headline inflation forecast, which includes food and energy, rose one-tenth of a point to 2.1 percent in 2019 and stayed at that level for the following year. Headline inflation projections also stayed at 2.1 percent for 2019 and 2020.
Fed working to Dump TRUMP! ?
No. It's an indication that the Trump economy is going like gang-busters and is in danger of overheating. The Fed is trying to throttle back a little so the strong economy continues to grow for a longer period and inflation doesn't take off.
Nope. They are doing what they should have done five years ago. A quarter percent every six months would be appropriate. This would push the CD rates back up to where they used to be (five-to-seven percent CDs were quite common in the 1980s).
The fed is trying to torpedo Trump. God the swamp runs deep.
I’m in favor of real interest rates in the 3-5% area.
Economic growth under Obama wasn't strong enough to take the rate increases. Under Trump it is.
Economic growth under Obama....was non-existent. Let’s be honest about that. And he didn’t care.
Quantitative Hiking ALERT!
In the chart in link above...cick on the 10 year tab at the bottom of the chart to see how the FED dealt with Obama’s economy.
What’s good for savers is now bad for the government since we now owe $20+ trillion. Every percent increase in interest is $200 billion more to service the debt!
The Fed made Obama’s fiscal irresponsibility seemingly painless. Now that we have someone who loves America in the Oval Office, the Fed will now begin the process of increasing the fiscal pain, hoping the Republicans will be blamed. The Keynesian chickens are coming home to roost.
It was anemic but it was there. Nothing like we're experiencing now.
Good for people with savings accounts. The low interest rates really hurt the retirees relying on CD’s but nobody seemed to care.
Keep the interest rate low was one of the few things they could do to keep the economy going during 0’s time.
Yup - it is likely they aren’t raising it to hurt Trump, but they definitely didn’t raise to to avoid hurting Obama.
Good, maybe I can actually earn a bit of interest on my money for a change...
One of my pet peeves is the Dems in government took away the no tax on $600 in savings interest back during the Reagan administration. Adjusted for inflation, it would be nearly $1500 today...................we ought to get it back!.................
Paying for a house in California will be much harder to make. Hope home prices come way down so I can buy. Not likely!
The FED has to do what it can to destroy the economy, and shore up the establishment.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.