Money & Banking

Fed raises rates, signals confidence in strengthening economy

Reuters WASHINGTON | Updated on March 22, 2018

Jerome Powell, Federal Reserve Board Governor   -  REUTERS

Forecast at least two more hikes for 2018

 

The Federal Reserve raised interest rates on Wednesday and forecast at least two more hikes for 2018, signaling growing confidence that U.S. tax cuts and government spending will boost the economy and inflation and lead to more aggressive future tightening.

In its first policy meeting under new Fed chief Jerome Powell, the U.S. central bank indicated that inflation should finally move higher after years below its 2 percent target and that the economy had recently gained momentum.

The Fed also raised the estimated longer-term “neutral” rate, the level at which monetary policy neither boosts nor slows the economy, a touch, in a sign the current gradual rate hike cycle could go on longer than previously thought.

“The economic outlook has strengthened in recent months,” the Fed said in a statement at the end of a two-day meeting in which it lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.50 per cent to 1.75 per cent.

Inflation “is expected to move up in coming months and stabilize” around the Fed's target, it said.

 

Following is the full text of the statement released by the Federal Reserve's Federal Open Market Committee on Wednesday following a two-day meeting:

Information received since the Federal Open Market Committee met in January indicates that the labour market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong in recent months, and the unemployment rate has stayed low.

Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent.

Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The economic outlook has strengthened in recent months.

The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committees 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 per cent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 per cent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 per cent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data

Published on March 21, 2018

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