Federal Reserve Hikes Interest Rate
- Author: Anthony Vega Mar 24, 2018,
Mar 24, 2018, 12:34
"Fiscal policy has become more stimulative".
The Fed raised its key rate by 25 basis points to a range of 1.50 percent to 1.75 percent on Wednesday and flagged at least two more increases for the year, short of the three that some economists had been predicting.
Stocks initially climbed after the Fed confirmed a long-expected quarter-point rate hike.
Fed officials also raised their forecast for 2017 GDP growth from 2.5 percent to 2.7 percent, while increasing the 2018 expectation from 2.1 percent to 2.4 percent. The financial conditions tightened since the end of January as investors sought signals that the central bank could raise interest rates faster. The Fed tightened policy three times a year ago. The Fed forecasts the unemployment rate will be 3.8 percent in 2018 and will decrease to 3.6 percent in 2019 and 2020.
Some analysts say a short-term economic stimulus from Congress - in the form of a $1.5 trillion tax cut and federal spending increases - could eventually push the Fed to add a fourth rate move.
US stocks saw considerable volatility before closing modestly lower overnight after a strong labor market and strength in the broader economy compelled the Fed to raise its benchmark interest rate by 25 basis points. The Fed's preferred inflation measure is forecast barely move up to 2.0% in 2019.
The currency, long in the spotlight after if its run-up against the greenback over the past year, appreciated to 31.16 to the dollar on yesterday's opening, while shares on the Stock Exchange of Thailand (SET) Index reached as high as 1,812.89 points in early trading before a late-afternoon descent below 1,800.
What the Federal Reserve rate hike means for US households
China blamed USA export restrictions for its record trade surplus with the United States, but expressed hope that a solution can be found to settle trade issues. This year's estimated United States economic growth was revised up to 2.7 per cent from an earlier forecast of 2.5 per cent. The median projection for the federal funds rate in 2020 stands at 3.4%, compared to the high of 5.25% seen in 2006.
USA economic strength is evident with the unemployment rate at a 17-year low and companies receiving windfalls from President Donald Trump's tax cuts, which they may reinvest to create jobs and improve wages.
That increased optimism appears to downplay lingering uncertainties in the recovery, including structural issues such as a ballooning debt load and trade barriers that could turn the economy's tail winds back into head winds.
In its quarterly forecasts, Fed officials projected the benchmark interest rate would end this year at 2.1% after two more hikes, unchanged from the December forecast, but would rise to 2.9% at the close of 2019, signalling three possible hikes that year. Other sectors like apparel could also be hit. Santos and Woodside Petroleum rose 1-2 percent as oil prices rallied on dollar weakness as well as data showing a surprise draw on US crude inventories.
The federal funds rate is sometimes referred to as the overnight rate, because banks conduct the lending and borrowing after daytime business hours.
But U.S. wage growth has remained sluggish and household budgets are tight.