Fed raises key rate and foresees two more hikes this year

EURUSD Daily

EURUSD Daily

But a recent $1.5 trillion tax cut and $300 billion spending bill, along with an improved economic outlook, have more recently changed that calculus. Powell said he's "carefully considering" expanding the number of such briefings where he explains Fed decision, cautioning that he wanted to be sure that didn't send any signals about the path of policy. Powell said Fed policymakers don't think changes in trade policy will affect their current economic outlook.

The Fed is widely expected to raise the benchmark lending rate Wednesday.

You'll probably see the first sign of rising interest rates on your credit card bill within a few weeks, said Tendayi Kapfidze, chief economist for loan comparison site LendingTree.

The Fed's measures of inflation were little changed, helping reassure investors that the USA central bank may not raise rates more than three times this year. It had risen as high as 2.93 percent as investors expected quicker gains in interest rates. At the same time, it increased its estimate for rate hikes in 2019 from two to three, reflecting an expectation of faster growth and lower unemployment.

Benchmark 10-year U.S. Treasury notes last fell 13/32 in price to yield 2.929 percent, from 2.881 percent late on Tuesday.

Dollars exchange rates could still find a rallying point in the wake of the Fed announcement, though, if the latest economic forecasts and dot plot are more hawkish in nature.

But he added: "Given how few people there are left to fill the jobs being created by the U.S. economy and with the unemployment rate forecast to continue to fall, wage demands are bound to increase over the coming months, so it's impossible to rule completely rule out a fourth rate hike before Christmas".

The Fed's new forecast envisions somewhat stronger economic growth compared with its previous estimate: It raises the estimate to 2.7 percent growth this year, up from 2.5 percent in the December projection, and 2.4 percent in 2019, up from 2.1 percent.

The vote to lift the federal funds rate target range to 1.5 per cent to 1.75 per cent was a unanimous 8-0.

"Job gains have been strong in recent months, and the unemployment rate has stayed low", the FOMC said.

Instead of fearing stubbornly low inflation, "officials are now looking to slightly overshoot their 2% inflation target in coming years", the Wall Street Journal reports. The Dow Jones Industrial Average closed down 45 points; it had been up 210 just before the announcement.

While Wednesdays move brings US interest rates to the highest levels in a decade, they are still far lower than the historic norm of about 5 percent. Financial conditions have tightened and the five rate increases under Yellen since December 2015 are finally being felt in the real economy, at least in mortgage rates.

In its statement the Fed said the economy had been expanding at a "moderate" rate and noted a slowdown in household and business investment.

The median projection for the long-run fed funds rate ticked up to 2.9 percent from 2.8 percent in December.

A smaller-than-expected uptick in public sector net borrowing for February offered further support to GBP exchange rates, boosting confidence in the underlying health of the United Kingdom economy.

Federal Reserve Chair Jerome "Jay" Powell also sounded a warning about rising trade tensions. "But with the USA output gap closing, and fiscal policy ramping up, it's a matter of time before he will need to make tougher decisions that really might upset his boss", Nash said.

Latest News