Fed Hikes Interest Rate, Its First Under New Chief Powell

Fed Hikes Interest Rate

On Wednesday, the U.S. Federal Reserve expectedly raised interest rates for the first time this year, also the first rate hike under new chief Jerome Powell. At least two further interest rate hikes are forecast for 2018 with more to come in the coming years as the nation looks to stay on guard against inflation.

The move to tighten the economy by lifting the benchmark overnight lending rate by a quarter of a percentage point (to a range of 1.5% to 1.75%) was made to keep in line with the central bank’s 2% inflation target, given the growing confidence in the current U.S. economy.

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“The job market remains strong, the economy continues to expand, and inflation appears to be moving toward the FOMC’s 2% longer running goal,” said Powell in a press conference earlier this afternoon.

“The guidance in terms of the future rate hikes is a touch more hawkish than originally expected. 2019 looks like we’re going to get a faster pace of rate hikes,” said Matt Miskin, market strategist at John Hancock Investments.

In addition, the Fed raised the estimated longer-term “neutral” rate, the level at which monetary policy neither boosts nor slows the economy.

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Previously, analysts were split over whether the Fed would raise interest rates this soon under a new leadership. There were also concerns over a potential global trade war with the recent tariffs implemented by the Trump administration.

However, Powell dismissed such concerns, stating that: “This is a new risk (that) had been probably a low-profile risk, but which has become … a more prominent risk to the outlook,” Powell said, adding, however, that the trade tensions had not affected the Fed’s expectations for the economy.”

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