Federal Reserve hikes key interest rate for second time in 2018

Andrew Cummings
June 14, 2018

Fed Chair Jerome Powell underscored his own satisfaction with the recovery in his remarks on Wednesday, saying the economy was in "great shape" and even going so far as to hint that he no longer feels constrained by the Janet Yellen-era fear of slipping back to zero interest rates.

"Having twice as many press conferences does not signal anything about the pace or timing of future interest rate changes", Powell said.

The 3.8-percent jobless rate is close to the lowest level ever seen in the U.S. There are more job openings than workers seeking employment in the country for the first time in recorded history, and recent inflation data shows prices inching through the Fed's ideal threshold.

Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory.

The change will start in January following the meetings that are scheduled roughly once every six weeks, to give the Fed "more opportunities to explain our actions", Mr Powell told reporters.


The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the U.S. central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.

The increase marks the highest level of interest rates in the United States since 2008.

The central bank raised its key short-term rate by a modest quarter-point to a still-low range of 1.75 percent to 2 percent.

To be sure, the Fed is not inclined to hike rates any more than gradually after years of mostly over-optimistic predictions for inflation and economic growth, and disappointing wage gains of around 2.5 percent annually.

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.


In addition to a new dot plot, the Fed updated its forecasts for economic growth and inflation.

The Federal Reserve expects the US gross domestic product to grow by 2.8% in 2018, up from March's forecast of 2.7%. In fact, the Fed didn't change its median longer-run growth estimate of 1.8 percent.

"The labour market has continued to strengthen. economic activity has been rising at a solid rate", the Fed said in its statement. That's weaker than the White House's forecast for 3% growth in 2021, suggesting the Fed is less optimistic about the boost from tax cuts.

Economists said the Fed left little doubt that it's prepared to increase the pace of its credit tightening to guard against high inflation later on. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast.

The Fed said its policy of further gradual rate increases will be "consistent with a sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2% objective".


Most economists had not expected the Fed to give a clear sign that an additional rate increase was likely until later in the year.

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