Fed Raises Interest Rates for Second Time this Year
Fed Raises Interest Rates for Second Time this Year
Fed raises interest rates and signals faster hikes on the way The Federal Reserve building
14 June, 2018, 05:44
Overnight, the Federal Reserve lifted the U.S. benchmark lending rate by 0.25 per cent in a widely expected move - to a range between 1.75 and 2 per cent.
The Fed also signaled that it will raise rates more this year than previously expected - four times rather than three.
The Fed now sees gross domestic product growing 2.8% this year, slightly higher than previously forecast, and dipping to 2.4% next year, unchanged from policymakers' March projections.
Asian shares edged down on Thursday after the Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening for the rest of the year, while concerns about U.S. "Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly". In its statement the central bank said that "economic activity has been rising at a solid rate". Unemployment, now at an 18-year low of 3.8 percent, would drop to 3.6 percent by year's end and to 3.5 percent in 2019 and 2020 - levels not seen in 49 years.
U.S. unemployment is already at 3.8 per cent, the lowest since 2000, and the Fed believes it will fall to 3.6 per cent by the end of the year, which would be the best rate since the 1960s.
Two additional rate hikes are predicted this year, for a total of four.
All three central banks (and the Bank of England) aim for inflation of about 2%, but in Japan and the Eurozone prices are rising substantially more slowly.
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So-called core inflation - which excludes volatile items like energy and housing - is now 2.2 percent, around the level the Fed is looking for.
Some emerging market currencies stayed under pressure on worries higher USA rates could prompt fund outflows from emerging markets to the United States.
This will raise borrowing costs for credit cards, auto financing, mortgages, and other loans, but help savers earn more interest on their deposits.
That shift came as a single FOMC member shifted his or her forecast for this year and next, breaking a virtual tie in the projections released in March.
US central bankers again emphasized on Wednesday that the goal is "symmetric", and they said in minutes of the May meeting that "a temporary period of inflation modestly above 2 per cent" would help anchor long-run inflation expectations around the target.
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.
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