Offbeat Fed raises rates amid stronger inflation, plans 2 more hikes

21:15  13 june  2018
21:15  13 june  2018 Source:   reuters.com

Will the Fed lift its forecast to four rate hikes in 2018?

  Will the Fed lift its forecast to four rate hikes in 2018? The Fed is set to raise interest rates this week, but will it lift its forecast to four hikes in 2018 from three? Also in the week ahead: retail sales and inflation data.Inflation has edged up in recent months, but that’s at least partly because of the fading effects of a drop in cellphone service charges in March 2017 on the annual change in total consumer prices. And while higher gasoline prices have pushed up overall inflation, a core measure that strips out volatile food and energy items and that the Fed monitors more closely has advanced modestly.

WASHINGTON: The US Federal Reserve raised interest rates on Wednesday and forecast at least two more hikes for 2018, highlighting its In its first policy meeting under new Fed chief Jerome Powell , the US central bank indicated that inflation should finally move higher after years below its 2

The Fed signaled two more rate hikes in 2018 amid speculation that it was considering adding a third increase to its projections. But it raised its forecasts for hikes in 2019 and 2020, citing a stronger outlook on the economy.

The Federal Reserve raised interests rate Wednesday, a move that was widely expected but still marked a milestone in the U.S. central bank's shift from policies used to battle the 2007-09 financial crisis and recession.

In raising its benchmark overnight lending rate a quarter of a percentage point to a range of between 1.75 percent and 2 percent, the Fed dropped its pledge to keep rates low enough to stimulate the economy "for some time" and signaled it would tolerate above-target inflation at least through 2020.

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of the economy's continuing expansion and solid job growth, rendering the language of its previous policy statements outdated.

Why your budget will feel the Fed's next rate hike

  Why your budget will feel the Fed's next rate hike That increase is likely coming this week, and it means a slew of borrowing costs will become more expensiveThe Fed's monetary policymakers are likely to add another quarter-point to the central bank's key interest rate, putting it at 1.75 percent to 2 percent, the highest since 2008, economists said. This would be the second of as many as four interest rate hikes this year. The Fed last raised its benchmark rate a quarter-point in March, moving it into the range of 1.5 percent to 1.75 percent.

The Federal Reserve raised its key interest rate and kept its forecast for three hikes in 2018 amid modest inflation . To find out more about Facebook commenting please read the Conversation Guidelines and FAQs. Fed raises rates , keeps forecast for 3 hikes in 2018.

The Federal Reserve kept interest rates unchanged Wednesday and signaled no change to its plans for additional rate hikes this year amid stronger inflation growth.

Inflation is also snapping into line, with fresh projections from policymakers on Wednesday indicating it would run above the central bank's 2 percent target, hitting 2.1 percent this year and remaining there through 2020.

Policymakers also projected a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.

They see another three rate increases next year, a pace unchanged from their previous forecast.

"The labor market has continued to strengthen ... economic activity has been rising at a solid rate," the Fed's rate-setting committee said in unanimous statement after the end of a two-day meeting.

"Household spending has picked up while business fixed investment has continued to grow strongly," the Fed said.

Inflation accelerates to a 6-year high, eroding wages

  Inflation accelerates to a 6-year high, eroding wages U.S. inflation accelerated in May to the fastest pace in more than six years, reinforcing the Federal Reserve’s outlook for gradual interest-rate hikes while eroding wage gains that remain relatively tepid despite an 18-year low in unemployment. The consumer price index rose 0.2 percent from the previous month and 2.8 percent from a year earlier, matching estimates, a Labor Department report showed Tuesday. The annual gain was the biggest since February 2012 and follows a 2.5 percent increase in April. Excluding food and energy, the core gauge was up 0.2 percent from the prior month and 2.

The Fed signaled two more rate hikes in 2018 amid speculation that it was considering adding a third increase to its projections. But it raised its forecasts for hikes in 2019 and 2020, citing a stronger outlook on the economy.

The Federal Reserve on Wednesday raised the key lending rate for the first time this year, citing a stronger outlook for economic growth In its quarterly forecasts, Fed officials project the benchmark interest rate will end this year at 2 .1 percent after two more hikes , unchanged from the December

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT).

The Fed's short-term policy rate, a benchmark for a host of other borrowing costs, is now roughly equal to the rate of inflation, a breakthrough of sorts in the central bank's battle in recent years to return monetary policy to a normal footing.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative," with gradual rate increases likely warranted as a sturdy economy enters a 10th straight year of growth.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run.


The Fed now sees gross domestic product growing 2.8 percent this year, slightly higher than previously forecast, and dipping to 2.4 percent next year, unchanged from policymakers' March projections. The unemployment rate is seen falling to 3.6 percent in 2018, compared to the 3.8 percent forecast in March.

Here's what the Fed rate hike actually means for you

  Here's what the Fed rate hike actually means for you If you're concerned about what an additional increase in the Fed's benchmark rate will mean for your mortgage or credit card, as well as student debt, home equity loan and car payment, here's a breakdown of what's in store — and what you should do about it. Credit cardsFor starters, credit card rates are already at a record high of 17 percent on average, according to Bankrate.Most credit cards have a variable rate, which means there's a direct connection to the Fed's benchmark rate, and as interest rates rise, card holders will continue to get squeezed.

Low inflation . The Fed raised rates for the second time since President Donald Trump took office, and it maintained its forecast for one more hike this year. The Fed was rosier about the other part of its mandate — the labor market — amid a 4.3% unemployment rate .

Federal Reserve Chairman Jerome Powell said the central bank can continue gradually raising interest rates as growth remains strong . Powell repeated the FOMC’s January message, saying “further gradual increases’’ in the Fed ’s policy rate “will best promote’’ the attainment of the central bank’s

The rate increase was in line with investors' expectations and showed policymakers' confidence in the economy's growth prospects, continued low unemployment and steady inflation. Investors had given just over a 91 percent chance of a rate rise on Wednesday, according to an analysis by CME Group.

The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective."

In a technical move, the central bank also decided to set the interest rate it pays banks on excess reserves -- its chief tool for moderating short-term interest rates -- at just below the upper level of its target range. The step was needed, the Fed said, to be sure rates stay within the intended boundaries.

The policy statement bypassed discussion about the tensions over the Trump administration's trade policies, including a decision two weeks ago to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico.

Individual Fed policymakers have expressed concerns about the economic risks of a broad tit-for-tat tariff retaliation, but have said they would not change their policies or forecasts until those risks are realized. 

Fed hikes push saving account rates to 5-year highs .
Finally, some noticeable rise is filtering into the wallets of consumers, and the best rates are at internet banksThis isn't good news for everyone, especially borrowers, who will have to contend with rising rates on everything from credit cards to auto loans. But it bodes very well for savers.

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