Fed Adjusts How It Raises Short-Term Rates to Keep Them Anchored

Andrew Cummings
June 13, 2018

The central bank also lifted its growth forecast to 2.8 per cent this year, up a small amount from its projection of 2.7 per cent annual growth in March.

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT).

The Fed now sees gross domestic product growing 2.8 percent this year, slightly higher than previously forecast, and dipping to 2.4 percent next year, unchanged from policymakers' March projections. The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%.

Interest rates are going up again as the economy gets hotter.


Fed officials expect to raise interest rates at least once more in 2018 and had been split on a possible fourth hike in their last meeting.

The decision reflected an economy that's getting even stronger.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said before the Fed made its announcement that policymakers are "scared of future inflation risk". Should the Fed's expectations prove accurate, its rate policy would then be meant to slow the economy.

United States 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.


Consumers can expect interest rates to rise for all types of debt. Inflation by the Fed's preferred gauge would hit its target of 2 percent this year and edge up to 2.1 percent over the next two years.

Fed officials have begun to debate publicly how close the economy is to overheating. Not since 1969 has the jobless rate been lower.

The economic expansion has survived for nine years and is now the second-longest in history. The U.S. central bank is also more optimistic on economic growth and further strength in the labor market.

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.


The Fed's meeting this week is to be followed by policy meetings of two other major central banks - the European Central Bank on Thursday and the Bank of Japan on Friday.

Other reports by iNewsToday

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