Federal Reserve hikes interest rates

07 April, 2018, 00:42 | Author: Lora Ball
  • Federal Reserve hikes interest rates

Fed officials were split on whether this week's policy meeting was the appropriate time to signal a fourth rate hike in 2018.

The Federal Reserve raised interest rates by a quarter percent Wednesday at the end of its two-day policy meeting - the first under new chief Jerome Powell.

One sentence in the FOMC statement provides the underlying rationale for its move: "The economic outlook has strengthened in recent months". Powell was appointed in October to replace former chair Janet Yellen.

But he said Federal Reserve Bank presidents around the country have heard concerns from businesses in their districts about the impact of the tariffs.

"There's no thought that changes in trade policy should have an effect on the current outlook", he said.

On Wednesday, Powell said he will carefully consider the possibility of holding more news conferences but that he had not decided whether to do it.

It came from the Fed's policy statement as well as the so-called dot plot, which illustrates the economic projections of its policymakers.

The Federal Reserve is raising its benchmark interest rate to reflect a solid US economy and signalling that it's sticking with a gradual approach to rate hikes for 2018 under its new chair, Jerome Powell.

Americans should expect even faster growth and lower unemployment ahead, Fed officials said.

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The Fed now expects economic growth to accelerate faster this year to 2.7 percent.

Rising interest rates are typically good for savers, who are likely to receive higher interest on the savings they have in the bank. This was also seen in upgrade projections for real GDP growth in the Survey of Economic Projections.

The median projection for the federal funds rate is 2.1 per cent at the end of this year, 2.9 per cent at the end of 2019 and 3.4 per cent at the end of 2020.

Higher interest rates aren't always a bad thing, however: They can also lead to increased rates for bank savings accounts, for example.

POWELL: We're trying to take that middle ground, and the committee continues to believe that the middle ground consists of further gradual increases in the federal funds rate as long as the economy is broadly on this path.

The improved outlook is aided by firming economic growth in rest of the world, simulative fiscal policy and overall accommodative financial conditions.

The rupee, which has strengthened a bit lately, came under pressure post the hike and is now hovering somewhere around 64.50 levels against the U.S. dollar, in the fourth quarter of this fiscal year. Mortgage rates do not move one-to-one with the Fed tightening, but clearly consumers should anticipate higher mortgage rates as time proceeds.

The central bank boosted its key short-term rate Wednesday by a modest quarter-point to a still-low range of 1.5 per cent to 1.75 per cent and said it will keep shrinking its bond portfolio.

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