Thursday, 21 June, 2018

Fed Raises Interest Rates for Second Time this Year

Federal Reserve expected to hike rates as Sterling slips Fed raises interest rates as unemployment nears record lows | TheHill
Ginger Lawrence | 14 June, 2018, 05:38

A majority of Fed officials also forecast two more rate rises this year, one more than previously predicted.

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%.

Here's the Fed's full statement: "Information received since the Federal Open Market Committee met in May indicates that the labour market has continued to strengthen and that economic activity has been rising at a solid rate".

The Federal Reserve raised United States interest rates again on Wednesday, the seventh increase since 2015 when the central bank resumed raising rates after the last recession.

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The Fed anticipates that inflation will overshoot its 2% target this year; in March, officials saw that happening only in 2020.

Inflation is also snapping into line, with fresh projections from policymakers on Wednesday indicating it would run above the central bank's 2% target, hitting 2.1% this year and remaining there through 2020. Rates for auto loans and variable-rate mortgages are also likely to increase.

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Fed officials and many economists worry that the low jobless rate could force employers to hike wages faster, as companies compete for workers.

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. Goods prices were up 1.0% last month after a flat reading in April, with energy 4.6% higher versus the prior 0.1% gain, with food prices bouncing 0.1% from -1.1% previously.

The committee sees further declines the unemployment.

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.

Yields have been climbing this year, as markets position for a relatively more aggressive Fed amid inflation concerns.

The rate hike on Wednesday was the seventh in this cycle and effectively marked a shift to a neutral stance in which the policy rate matches inflation at just under 2 percent, leaving zero "real" accommodation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments.