Wednesday, 17 October, 2018

Traders see fourth Fed interest rate hike this year

Federal Reserve raises interest rates Fed raises interest rates as unemployment nears record lows | TheHill
Laurie Berry | 13 June, 2018, 23:23

The Federal Reserve on Wednesday tweaked the way it raises short-term interest rates to keep them from floating too high.

Given how easy financial conditions are at present, particularly against a backdrop of ultra-low unemployment, faster economic growth, and building wage and inflationary pressures, it wouldn't surprise if some FOMC members up their year-end forecasts for interest rates, something that would likely see the median rate hike forecast lift from three to four moves this year.

Inflation, which has been mysteriously low during the long economic recovery, has finally passed 2%, the level the Fed considers healthy.

Fed says raises interest on excess reserves rate to 1.95 pct from 1.75 pct.

Importantly, BAML says easy financial conditions also signal to the Fed that the U.S. economy can handle a "faster path of rate hikes".

"The labor market has continued to strengthen ... economic activity has been rising at a solid rate", the Fed's rate-setting committee said in unanimous statement after the end of a two-day meeting. The statement the Fed issued today after its latest policy meeting ended suggested that he does.

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"The bond market has the belief that, as the Fed continues to tighten, it's going to lead to a slowing of the economy", said Peter Boockvar, chief investment officer of Bleakley Financial Group.

The decision to raise rates comes as the USA unemployment rate hovers at 3.8% - the lowest rate in almost two decades - and inflation, which lagged the Fed's 2% target for years, shows signs of starting to pick up.

A 25 basis point hike to the Fed funds rate is seen as a certainty by markets, meaning most interest will be on the Fed's updated economic and interest rate forecasts for the years ahead.

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.

The decision reflected an economy that's getting even stronger.

United States unemployment dropped to 3.8% in May, its lowest level since April 2000 and one of the lowest levels since the second world war. The projections show inflation rising 2.1% for the next three years. Investors had given just over a 91 percent chance of a rate rise on Wednesday, according to an analysis by CME Group.

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