Fed Raises Interest Rates, Signals Faster Hikes on the Way
Jun 14 2018 by Johnny Bowman
According to CNBC, the Reserve released new data this week showing the GDP forecast rose to almost 3%, up from the previous predictions of 2.7%.
"In view of realized and expected labor market conditions and inflation, the Committee made a decision to raise the target range for the federal funds rate to 1-3/4 to 2 percent", the Fed said in a statement.
The strong economic data comes just hours after the US Treasury confirmed it had taken in a record-smashing tax haul in the first fiscal months of 2018; breaking previous highs by $50 billion in personal income tax.
The higher rates should be a boon for savers, while increasing borrowing costs for households and businesses throughout the economy.
The Fed has raised rates seven times since late 2015 on the back of the economy's continuing expansion and solid job growth, rendering the language of its previous policy statements outdated.
This was the seventh rate hike since late 2015, when the Fed first began lifting interest rates from nearly zero.
The Fed anticipates that inflation will overshoot its 2% target this year; in March, officials saw that happening only in 2020.
That is a welcome step-up from the roughly 2-percent growth averaged throughout the recovery, which was plagued by a series of crises overseas and uncertainties at home, delaying the Fed's tightening plans.
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The statement by Fed officials explaining the vote also hinted at a slightly faster pace for future rate increases. In the United Kingdom, the Bank has stopped actively buying financial assets and interest rates are up a little from their lows.
The new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast. Risks to the economic outlook appear roughly balanced.
The Fed now foresees four rate hikes this year, up from the three it had previously forecast.
That index now is at 2 per cent but other measures of consumer and producer prices have accelerated, pushed by rising fuel prices, as well as metals prices that could be the result of the steep import tariffs President Donald Trump imposed.
MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.25 percent in early trade.
US central bankers again emphasized on Wednesday that the goal is "symmetric", and they said in minutes of the May meeting that "a temporary period of inflation modestly above 2 per cent" would help anchor long-run inflation expectations around the target. With the economy now nine years into an expansion, the move reflects the steadiness of growth, the job market's strength and inflation that's finally reaching the Fed's 2 percent target level.
The FOMC's economic growth forecasts were little changed, with 2018 GDP seen rising 2.8 per cent rather than 2.7 per cent, but unchanged at 2.4 per cent in 2019, and 2 per cent in 2020.