Fed hikes rate for second time this year

  • Fed hikes rate for second time this year

Fed hikes rate for second time this year

The U.S. economy continues to strengthen, the Fed indicated, and it no longer needs the historically low interest rates that were put in place in the aftermath of the financial crisis to stimulate growth.

It is the seventh time the bank has raised rates since 2015.

Fed officials also said they expect to raise rates twice more this year, faster than previously forecast. The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%.

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

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

On inflation, policy makers forecast a slight overshoot of their target starting in 2018 at 2.1 percent, and running through 2019 and 2020, compared with a 2020 overshoot in March's projections. The Federal Reserve releases minutes from the March meeting of its policymakers on Wednesday, April 11.

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. The Fed is looking for interest rates to rise to 3.4% by 2020, unchanged from the previous forecast. 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.

The committee sees further declines the unemployment. However, the focus will be on the updated economic projections and the dot diagram, which will reveal the expectations of the number of rate hikes in the remainder of the year.

We are closing into the FOMC's June policy decision and as the clocks tick closer to the decision timing, following are the expectations as forecasted by the economists and researchers of 8 major banks along with some thoughts on the future course of Fed's action.

In a technical move, the central bank also chose 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.

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