Fed announces U.S. rate increase

Fed announces U.S. rate increase

The U.S. dollar fell Wednesday ahead of the conclusion of a Federal Reserve meeting where investors believe the central bank will raise interest rates. He said stocks dropped after Powell said rates might rise higher than the Fed expects.

"Job gains have been strong in recent months, and the unemployment rate has stayed low", the FOMC said.

Newly-installed Fed Chairman Jerome Powell pointed to factors that have boosted the economic outlook in recent months, including "more stimulative" fiscal policy, in the wake of the massive tax cuts Congress passed in December. Higher rates could also lead to portfolio rebalancing by worldwide investors.

The Fed anticipates hiking rates three more times in 2018, part of an ongoing move away from the extraordinary measures it took to stimulate the economy during and after the Great Recession.

Chairman Jerome Powell, picked by Trump to lead the US central bank, said policy makers had not altered their economic outlook following the president's announcement of trade tariffs on steel and aluminum and threats of measures against Chinese goods.

USA stocks initially rallied on the Fed announcement. At the end of trading it wobbled and ended lower.

There is evidence in rising debt levels: American households owed a record high total of $13.15 trillion at the end of 2017, according to data from the New York Fed.

The Fed hasn't hiked rates four times in a year since 2006.

How does the Fed increase interest rates?

Back, in 2015, Federal Reserve Chairwoman Janet Yellen made news when she announced the bank would increase the federal funds rate to a range between 0.25% and 0.5%. It projects federal funds rates of 2.1 percent in 2018, 2.9 percent in 2019 and 3.4 percent in 2020. It was also hinted that interest rates would be raised twice more this year, while forecasts were also raised for increases in 2019. But he said the Fed's regional bank presidents around the country have heard concerns from businesses about the consequences of the tariffs.

However, he also acknowledged that central bankers now consider the prospects of a global trade war as a "more prominent risk" to the economic outlook.

Just focusing on the median of Fed officials' forecasts for interest rates, as Mr. Powell emphasized in his news conference, can mask the degree of the shift.

Ten years after the financial crisis, even as the Fed is carefully moving towards normalizing policy-though it may have to move faster if inflation surprises on the upside-the risk for the global economy at the moment is populist measures by the United States government.

There are also other changes in the Fed's statement. In January, officials described economic activity and job growth as "solid". The Fed expects the U.S. unemployment rate, now at 4.1 per cent, to come down to 3.8 per cent in 2018 and 3.6 per cent in 2019, both revised higher from the December projection of 3.9 per cent in 2018 and 2019.

Those higher estimates may reflect the expected impact of the additional government spending.

Oddly, the Fed kept its inflation forecast for the next two years the same even though it sees a stronger economy and falling unemployment rate.

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