ECONOMIC STRENGTH
U.S. Federal Reserve to raise its key interest rate for the fourth time this year,
WASHINGTON— The U.S. Federal Reserve is raising its key interest rate for the fourth time this year to reflect the U.S. economy’s continued strength but signalling that it expects to slow hikes next year.
The quarter-point hike, to a range of 2.25 per cent to 2.5 per cent, lifted the Fed’s benchmark rate to its highest point since 2008. The increase will mean higher borrowing costs for many consumers and businesses.
The statement the Fed issued Wednesday after its latest policy meeting says “some” further gradual rate increases are likely. But its updated forecast projects just two rate hikes next year, down from three the Fed had predicted in September. The new forecast also reduces the long-run level for the Fed’s benchmark rate to 2.8 per cent, down from 3 per cent.
The Fed has raised rates with steady regularity as the U.S. economy has strengthened. Wednesday’s was the Fed’s ninth hike since it began gradually tightening credit three years ago. But a mix of factors — a global slowdown, a U.S.-China trade war, still-mild inflation, stomach-churning drops in stock prices — has led the Fed to consider slowing its rate hikes in 2019 to avoid weakening the economy too much. It’s now likely to suit its rate policy to the latest economic data — to become more flexible or, in Fed parlance, “data-dependent.”
The Fed has so far managed to telegraph its actions weeks in advance to prepare the finan- cial markets for any shift. But now, the risks of a surprise could rise. Next year, chair Jerome Powell will begin holding a news conference after each of the Fed’s eight meetings each year, rather than only quarterly. This will allow him to explain any abrupt policy shifts.
Some analysts say the Fed may want to pause in its credittightening to assess how the economy fares in the coming months in light of the headwinds it faces. Contributing to this view was a speech Powell gave last month in which he suggested that rates appear to be just below the level the Fed calls “neutral,” where they’re thought to neither stimulate growth nor impede it. Powell’s comment suggested that the Fed might be poised to slow or halt its rate hikes to avoid weakening the economy.
For now, most U.S. economic barometers are still showing strength. The unemployment rate is 3.7 per cent, a 49-year low. The economy is thought to have grown close to 3 per cent this year, its best performance in more than a decade.