Fed hikes interest rates again, raises outlook for more increases in 2018

Fed hikes interest rates again, raises outlook for more increases in 2018

Fed hikes interest rates again, raises outlook for more increases in 2018

Fed officials had been split about whether to raise rates three times this year or four.

According to CNBC, the Reserve released new data this week showing the GDP forecast rose to almost 3%, up from the previous predictions of 2.7%.

The Federal Reserve raised U.S. interest rates again on Wednesday, the seventh increase since 2015 when the central bank resumed raising rates after the last recession.

Some emerging market currencies stayed under pressure on worries higher USA rates could prompt fund outflows from emerging markets to the United States.

"Job gains have been strong, on average, in recent months, and the unemployment rate has declined", the Fed said in its latest policy statement.

It was the Fed's seventh rate increase since it began tightening credit in 2015, and it followed an increase in March this year.

Also notable was that the Fed deleted about 80 words of its statement that said it expected the economy to "evolve in a manner that will warrant further gradual increases" in rates. This was the second hike this year, up from March's increased range of 1.5 to 1.75 percent.

"Household spending has picked up while business fixed investment has continued to grow strongly", the Fed said.

This will raise borrowing costs for credit cards, auto financing, mortgages, and other loans, but help savers earn more interest on their deposits. Risks to the economic outlook appear roughly balanced.

The central bank's new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast. 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.

The core PCE index, which excludes food and energy and is seen by officials as a better gauge of underlying price pressures, is forecast to reach 2 per cent this year and 2.1 per cent in 2019 and 2020.

MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.25 percent in early trade. That compares with March's forecasts for 3.8 per cent this year and 3.6 per cent in the following two years.

In another slight change of language - something sure to catch the attention of Fed watchers - it said "further gradual increases" in the key rate "will be consistent with sustained expansion of economic activity, strong labour market conditions and inflation near the Committee's symmetric two per cent objective over the medium term".

"The Fed deserves tremendous credit for steering the economy to calmer waters, supporting what is likely to be the longest expansion in USA history while meeting inflation and employment objectives", said Stephen Gallagher, chief US economist at Societe Generale. It also forecast an even lower unemployment rate of 3.5% for 2019 and 2020.

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