GREAT AGAIN: Fed RAISES 2018 Economic Outlook, HIKES Interest Rates

by Ben Pena June 14, 2018, 7:24
GREAT AGAIN: Fed RAISES 2018 Economic Outlook, HIKES Interest Rates

"In view of realized and expected labor market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 percent", read a portion of a Federal Open Market Committee statement released Wednesday afternoon.

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.

That implies four total rate increases this year. For 2020, the Fed foresees a median of 3.4 percent. It's the second rate hike under Powell, a Republican appointed to lead the Fed by President TrumpDonald John TrumpWhat you need to know about Tuesday's elections Danny Tarkanian wins Nevada GOP congressional primary Laxalt, Sisolak to face off in Nevada governor's race MORE. Even amid concerns about USA trade policy, the Fed raised its forecast for gross-domestic-product growth this year to 2.8% from 2.7%. At the same time, they project the unemployment rate to fall to 3.6 percent this year, down from earlier projections of 3.8 percent.

Powell was speaking at a press conference after the Fed announced its decision to raise interest rates.

The Federal Reserve is guiding a USA economy that is as close to ideal as it could have dreamed a decade ago, when the darkest days of the recession forced it to take big risks to protect workers, banks and economies around the world from further devastation.

The Fed statement also underscored the committee's commitment to growth even though it was notching up the pace of rate hikes this year.

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With employers hiring at a solid pace month after month, unemployment has reached 3.8 percent.

"The economy doesn't need two more rate hikes, especially with geopolitical risks", such as tariffs, which could slow growth in the US and around the world, said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management.

The Fed offered an improved forecast for unemployment this year, lowering its forecast to 3.6%. The Fed previously nudged rates up in March. With higher interest rates, this means that real interest rates will push higher.

The Fed anticipates that inflation will overshoot its 2% target this year; in March, officials saw that happening only in 2020. When the Fed tightens credit, it aims to do so without derailing the economy.

Beginning in 2008 in the midst of the financial crisis, the Fed kept its key rate unchanged at a record low near zero for seven years. But if it miscalculates and overdoes the credit tightening, it can trigger a recession. That reflects the fact that the U.S. recovery after the crisis has been stronger, and inflation is getting closer to the Fed's target. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001. European Central Bank officials meet on Thursday to discuss for the first time when to end their bond-buying program although they may delay an announcement until July.

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