Fed hikes interest rates again, raises outlook for more increases in 2018

Federal Reserve expected to hike rates as Sterling slips

Federal Reserve expected to hike rates as Sterling slips

The central bank's 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.

"For the first time in many years, the Fed has nearly complete confidence about the outlook", said Michael Gapen, chief USA economist at Barclays Capital Inc.in NY.

Interest rates are expected to increase to 3.1% next year, up from the previous forecast of 2.9%.

The Federal Reserve on Wednesday announced that it chose to raise interest rates, and it signalled plans to do so more times than expected this year.

This hike, which was widely expected, is the Fed's second of 2018, and the central bank signalled it is likely to do two more increases by the end of this year.

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

While many economists think the current expansion will exceed the 1990s streak, some worry about what might occur once the impact of the tax cuts begin to fade and the Fed's gradual rate hikes begin to curb growth.

Most officials also expect the Fed will have to raise rates at least three times in 2019 and then at least once in 2020.

The central bank also lifted its growth forecast to 2.8 per cent this year, up a small amount from its projection of 2.7 per cent annual growth in March.

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Press conference after every meeting would give the Fed more room to make decisions as the economy warrants, and to be less choreographed. In fact, the Fed didn't change its median longer-run growth estimate of 1.8 percent. 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.

The committee sees further declines the unemployment.

"In view of realized and expected labor market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 percent", the Fed said in a statement. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 per cent. Indicators of longer-term inflation expectations are little changed, on balance. Risks to the economic outlook appear roughly balanced.

In comparison, the Reserve Bank kept Australia's official cash rate at 1.5 per cent, its record low for the past 20 months.

Fed repeats that stance of monetary policy remains accommodative.

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. Previously, the statement made separate references to survey-based and market-based measures of such expectations.

"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 per cent inflation objective".

"Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams".

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