Federal Reserve raises interest rates

Galtero Lara
Junio 14, 2018

The US economy continues to strengthen, the Fed indicated, and it no longer needs the historically low interest rates that were put in place in the aftermath of the financial crisis to stimulate growth. The number viewing three or fewer hikes as appropriate fell to seven from eight.

The federal government drastically upgraded its forecasted 2018 economic outlook Wednesday, saying the USA economy was rising at a "solid" rate; an increase from its previous prediction of "moderate" growth.

Federal Reserve Chairman Jerome Powell spoke, March 21, following the Federal Open Market Committee meeting in Washington.

The federal funds target rate, which is now between 1.75 and 2 percent, is the highest it's been in almost a decade, indicating that the nation's central bank has confidence the economy will continue to expand.

This marks the seventh time the Fed has hiked rates since 2015, per Reuters, and is part of a slow process to return rates to normal levels. Other changes included referring to "further gradual increases" instead of "adjustments". Previously, the statement made separate references to survey-based and market-based measures of such expectations.

This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does.

Individual Fed policymakers have expressed concerns about the economic risks of a broad tit-for-tat tariff retaliation, but have said they would not change their policies or forecasts until those risks are realized.

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

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The Federal Reserve raised a key interest rate another quarter-point on Wednesday.

Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m., his second since taking the helm from Janet Yellen in February.

However, higher rates would help savers earn more interest on their deposits.

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.

Job growth has consistently outperformed in recent years, driving unemployment down to 3.8 percent in May, the lowest reading since 2000. USA payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years.

Growth is also expected to stay close to nearly 3 percent of GDP through the year, and Fed officials are eager to prevent the economy from overheating.

Fed Governor Lael Brainard, among the most dovish policymakers least anxious to tighten, said on May 31 "the sizable fiscal stimulus that is in train is likely to provide a tailwind to growth in the second half of the year and beyond".

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