Wednesday, 15 August, 2018

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

Federal Reserve Board Chairman Jerome Powell took office in February replacing Janet Yellen who left office having won plaudits for her stewardship of an economic recovery that produced low inflation and steady job growth Fed Chief Jerome Powell Goes Populist AFP 13 Jun 2018
Laurie Berry | 14 June, 2018, 05:42

TOKYO, June 13 (Reuters) - Asian shares fell on Wednesday as investors braced for a Federal Reserve policy decision later in the day and any clues it might give on future rate hikes that could alter the course of global economic growth and corporate earnings. The Fed is raising rates gradually to keep the economy in check.

The central bank said it expects two more rate hikes this year, indicating an increasingly positive view of the economic expansion.

The US Federal Reserve has voted to raise the target for its benchmark interest rate by 0.25%.

Announcing the decision to increase its target for the fed-funds rate to a range of 1.75% to 2%, the Fed described the usa jobs market as "strong" and said economic activity had been rising at "a solid rate". The rate is closely tied to adjustable-rate loans, such as home-equity lines of credit and credit cards.

- Fed funds price in an 81% chance of a 25-bps rate hike in September, and odds for December increased from 51% to 57% as Fed Chair Powell's press conference got under way.

A decade after the recession, the Fed has made progress on its objectives.

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

World Cup Returning to US After North American Bid Beats Morocco
Collectively, the three countries have 17 stadiums which would require no extra work to make them World Cup-ready. At the FIFA Congress in Moscow on Wednesday, North America's bid tallied 134 votes, while Morocco got 65.

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.

"With a rate hike nearly fully priced in, the focus is on how many times the Fed will raise rates this year and next and how much beyond the levels it considers as neutral to the economy, or what they call the longer-run rates", said Shuji Shirota, head of macro economic strategy group at HSBC Securities in Tokyo.

The increase marks the highest level of interest rates in the United States since 2008. But that exorbitant rate is likely to go up to 15.57% within two billing cycles, CompareCards says, as lenders pass along the higher rates to clients.

While many economists think the current expansion will exceed the 1990's 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. This would improve the Fed's communication, Powell said. For 2020, the Fed foresees a median of 3.4 percent.

USA companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 per cent this year. In the longer run, it maintained the forecast for 1.8% growth. "Ongoing job gains are boosting wages and confidence".

"Household spending has picked up while business fixed investment has continued to grow strongly", the Fed said. 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.

The committee sees further declines the unemployment. Fed officials repeated their assessment that "risks to the economic outlook appear roughly balanced". Here is the quote: "The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation". The Fed targets core inflation and it is finally on the rise.

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