Published: Thu, June 14, 2018
Money | By Armando Alvarado

Fed announces rate decision

Fed announces rate decision

"In view of realized and expected labor market conditions and inflation, the Committee made a decision 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.

USA growth is also getting a boost from $1.5 trillion in tax cuts and a $300 billion increase in federal spending, with inflation at the central bank's 2 per cent target for two months.

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.

That also means cardholders soon will be forking over even more money in interest payments annually, an estimated $2.2 billion alone for what's expected to be the Federal Reserve's second rate hike of the year, according to the June Credit Card Debt Report from CompareCards. The average rate for a 30-year fixed mortgage hit a high of 4.8 percent in the last week of may before dropping slightly. That compares with March's forecasts for 3.8 per cent this year and 3.6 per cent in the following two years.

The Fed watches price measures closely to determine how fast to raise interest rates but has signalled that the 2 per cent target is not a ceiling, and that it would be comfortable with inflation rising slightly above that level for a time.

That is a welcome step-up from the roughly 2-percent growth averaged throughout the recovery, which was plagued by a series of crises overseas and uncertainties at home, delaying the Fed's tightening plans.

North Korea will learn from Singapore's economic development: Rodong Sinmun
They also say by winning the prestige of a meeting with the world's most powerful leader, Mr Kim has already gained a victory. That decision has raised concerns about the risk of holding such a monumental meeting with barely anyone to bear witness.

On inflation, policy makers forecast a slight overshoot of their target starting in 2018 at 2.1 per cent, and running through 2019 and 2020, compared with a 2020 overshoot in March's projections.

The use of the terms "symmetric" and "medium term" is a clear indication the Fed is not in a hurry to get inflation to 2 per cent, and will be comfortable if prices rise above that level for a short time. The Fed expects unemployment to fall to 3.6% this year, and, said Powell, "Most people who want to find jobs are finding them". In the United Kingdom, the Bank has stopped actively buying financial assets and interest rates are up a little from their lows.

The rate increase was in line with investors' expectations and showed policymakers' confidence in the economy's growth prospects, continued low unemployment and steady inflation.

That index now is at 2 per cent but other measures of consumer and producer prices have accelerated, pushed by rising fuel prices, as well as metals prices that could be the result of the steep import tariffs President Donald Trump imposed.

The bank's preferred indicator of inflation, consumer spending figures, showed annual inflation rose 2% in April or 1.8% if energy and food were excluded.

U.S. President Donald Trump will meet with his top trade advisers on Thursday to decide on whether to activate the tariffs, a senior Trump administration official said. Economic activity is projected to expand 2.4% in 2019, unchanged from the previous forecast; finally, the economy is expected to grow 2.0% in 2020, unchanged from the previous forecast.

Like this: