Fed raises rate 25 bps and sees another hike this year27th September 2018
The U.S. Federal Reserve raised its benchmark federal funds rate by another 25 basis points to 2.0 – 2.25 percent, as widely expected, and maintained its forecast for another rate hike this year and then another three rate increases next year.
In an update to its economic forecast, the Federal Open Market Committee (FOMC), the Fed’s monetary policy setting body, confirmed its forecast from June that its policy rate would average 2.4 percent this year, then 3.1 percent in 2019 and 3.4 percent in 2020, implying one final rate hike.
By 2021 the FOMC forecast the fed funds rate would remain steady at 3.4 percent and above the longer-run average rate of 3.0 percent, which was raised from June’s forecast of. 2.9 percent.
The U.S. central bank has now raised its rate three times this year by a total of 75 basis points and eight times for a total of 200 points since December 2015 when it began tightening its policy.
In its accompanying statement, the FOMC repeated its view from August that the labor market had continued to strengthen, economic activity had been rising at a strong rate, job gains have been strong and the unemployment has stayed low while household spending and business investment had grown strongly.
The Fed also reiterated that further “gradual increases” in the target for the federal funds rate would be consistent with expanding economic activity, strong labour market conditions, and inflation that is near its symmetric objective of 2 percent.
But illustrating the U.S. economy is on a firm footing, a unanimous FOMC dropped its past description of its monetary policy stance as “accommodative.”
Reflecting the boost to the U.S. economy from fiscal spending and tax cuts, the Fed raised its forecast for economic growth this year to 3.1 percent from a previous 2.8 percent, and the 2019 growth forecast to 2.5 percent from 2.4 percent.
For 2020 the growth forecast was unchanged at 2.0 percent and in 2021 growth is seen slowing to 1.8 percent, the longer-run average.
The U.S. economy has been picking up speed in the last five quarters, with annual growth of 2.9 percent in the second quarter.
Inflation is seen stable in coming years, with the Fed’s preferred measure, personal consumption expenditure, averaging 2.1 percent this year, then 2.0 percent in 2019 and 2.1 percent in 2020 and 2012.
The U.S. consumer price inflation rate eased to a lower-than-expected 2.7 percent in August from 2.9 percent in July.
The U.S. dollar was little changed on the Fed’s rate hike.
The Board of Governors of the Federal Reserve System released the following statement: