Sunday, 15 July, 2018

Powell marks start of Fed tenure with rate rise

US Federal Reserve nudges up interest rates again, expects more to come US Fed raises interest rates
Scott Davis | 22 March, 2018, 02:03

As expected, the Fed raised its benchmark federal-funds rate by a quarter percentage point to a still-low range of 1.5 percent to 1.75 percent.

Wall Street was on track for a lower opening on Wednesday as traders moved cautiously ahead of an expected Federal Reserve interest rate hike and continuing fallout from Facebook Inc's data privacy breach. The statement described economic activity as rising at a "moderate rate", a slight downgrade from January, when the Fed described the economy as rising at a "solid rate". Wednesday's forecast put the Fed long-term rate - the point at which its policies are neither boosting the economy nor holding it back - at 2.9 percent.

The Dow Jones Industrial Average fell 28.09 points, or 0.11 percent, to 24,699.18, the S&P 500 lost 3.47 points, or 0.13 percent, to 2,713.47 and the Nasdaq Composite dropped 7.34 points, or 0.1 percent, to 7,356.96.

The Fed's rate hike marks its sixth since it began tightening credit in December 2015. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

"For 2018 we didn't get what a lot of people whispered -four rate hikes - but that was balanced by the rate hikes in 2019 and 2020", he said. Interest rates exceeded 5 percent through much of the 1990s, but were near zero in the years after the start of the 21st century. As banks are charged more for money, they can raise rates on small business loans, credit cards and mortgages.

"The Federal Open Markets Committee said in a statement that the move was justified by encouraging economic indicators including strong job gains and low unemployment". However, it disappointed currency traders who had bet it was prepared to raise rates perhaps four times this year as the jobs market approaches full employment.




The Fed now expects economic growth to accelerate faster this year to 2.7%.

"Based on the data inside the summary of economic projections and the dot plot forecast, investors and firm mangers should anticipate a fourth rate hike added to the scoreboard at the June 2018 FOMC meeting", said RMS Chief Economist Joe Brusuelas. Powell said Fed policymakers don't think changes in trade policy will affect their current economic outlook.

The Fed's statement did not mention the extra government stimulus that has been added since its most recent economic forecast in the form of a $1.5 trillion tax cut and a budget agreement that will add $300 billion in government spending over two years.

Lael Brainard, a Fed governor who has been less hawkish than many of her colleagues, said in a speech this month that in many ways, "today is the mirror image of the environment we confronted a couple of years ago".

Federal Reserve Board Chairman Jerome Powell testifies during a Senate banking committee hearing in Washington, D.C., on March 1.

Powell then commented on the strength of the economy and projections for future rate increases as inflation remains below the Fed's target of 2% despite a host of strengthening signs in the labor market.

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