Fed raises key rate and sees possible acceleration in hikes

  • Fed raises key rate and sees possible acceleration in hikes

Fed raises key rate and sees possible acceleration in hikes

Fed officials expect to raise rates two more times this year for a total of four hikes; in March, they expected three rate hikes.

"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 per cent objective over the medium term", according to its statement following a meeting in Washington. Unemployment, now at an 18-year low of 3.8 percent, would drop to 3.6 percent by year's end and to 3.5 percent in 2019 and 2020 - levels not seen in 49 years.

Currently, Americans carry $984 billion in credit card and other revolving debt, and that number is expected to eclipse $1 trillion during the summer, a seasonal period that normally sees higher levels of card usage to pay for things such as vacations, day trips and other warm-weather activities.

Officials lowered their jobless-rate estimates after unemployment fell to 3.8 per cent as of May, matching April 2000 as the lowest reading since 1969.

Growth is also expected to stay close to nearly 3 percent of GDP through the year, and Fed officials are eager to prevent the economy from overheating. Government data show that hourly earnings are rising at an annualized rate of 2.8 percent, and even a touch more for lower-income workers. The step was needed, the Fed said, to be sure rates stay within the intended boundaries.

"Rising interest rates will start taking a toll on borrowers that are already stretched to the limit with tight household budgets", said Greg McBride, the chief financial analyst at Bankrate.com. The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 per cent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth. Inflation by the Fed's preferred gauge would hit its target of 2 percent this year and edge up to 2.1 percent over the next two years.

Trump has slapped tariffs on steel and aluminum imports, has threatened additional tariffs on Chinese imports and has directed his administration to consider further duties on imported cars.

With employers hiring at a solid pace month after month, unemployment has reached 3.8 per cent. Prices did not spike in response to the huge monetary stimulus, nor has the job market cooled since 2015 when the Fed began tightening policy.

At nine years, the economic expansion is now the second-longest in history.

Since the Fed began holding quarterly news conferences in 2011, it has announced major policy moves only at the quarterly meetings, which have all been followed by a news conference by leader of the Fed. All those countries have vowed to retaliate against any US tariffs with their own penalties against USA goods.