Fed Hikes Interest Rate, Its First Under New Chief Powell

Alicia Cross
March 24, 2018

The FOMC's meeting, the first one chaired by Jerome Powell, saw all the eight voting members unanimously favouring an interest rate hike.

Central bankers see growth picking up this year and next, with GDP gaining 2.7 percent in 2018 and 2.4 percent in 2019.

In December, the Fed predicted USA gross domestic product (GDP) to grow 2.5 percent this year, 2.1 percent in 2019 and two percent in 2020.

Central bankers admitted to being befuddled by the absence of inflation past year despite the economic recovery and strong job market, but Wednesday's statement repeated the view that 12-month inflation is expected to move up to the Fed's two percent goal "over the medium term".

In response, the dollar sank against most other units in NY and while the Fed also said it saw a more aggressive path of hikes over the next two years as the economy continues to strengthen, the U.S. unit failed to bounce back. "People are buying more shoes, but higher rates do pose a challenge for footwear companies, which need loans to expand and grow because it will now cost them more to borrow".

"The guidance in terms of the future rate hikes is a touch more hawkish than originally expected. Job gains have been strong in recent months, and the unemployment rate has stayed low", it said in a post-meeting statement. Unemployment is now expected to fall to 3.8 percent this year and 3.6 percent in 2019, which would be the lowest level since 1969. "Overall, consumer prices, as measured by the price index for personal consumption expenditures increased 1.7 percent in the 12 months ending in January", he said.

"Fiscal policy has become more stimulative". It's not quite enough to tip the official forecast to four rate increases, but it's getting close.

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That likely caused Fed officials to signal they expect a slightly more aggressive path for rate increases next year.

Stocks initially climbed after the Fed confirmed a long-expected quarter-point rate hike.

US Treasury Secretary Steven Mnuchin said on Wednesday his agency has prepared US investment restrictions on China for President Donald Trump to consider as part of his upcoming announcement on intellectual property actions against Beijing.

CHINA TRADE: China's Commerce Ministry said it would take "all necessary measures" to defend China's interests if President Donald Trump targets China for allegedly stealing American technology or pressuring USA companies to hand it over.

CURRENCIES: The dollar fell to 105.68 yen from 106.05 yen.

For most Americans the Fed increase translates to higher interest paid out on bank savings accounts and more money being paid out for mortgages. It is, after all, no secret that private corporations attracted by ultra-low interest rates had heavily loaded up on debt over the last decade.

The dollar struggled against its peers on Thursday after the Federal Reserve maintained the view that it would raise interest rate three times in 2018 instead of the four that some currency bulls had hoped for.

Other reports by Free-Prsite

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