US FED HIKES RATES BY 25 BASIS POINTS
Third hike this year; more coming
The US Federal Reserve raised interest rates for the third time this year and reaffirmed its outlook for further gradual hikes in 2019, risking fresh criticism from President Donald Trump. The quarter-point increase boosted the benchmark federal funds rate to a target range of 2 per cent to 2.25 per cent. The move reflected an upbeat assessment of the economy that was identical to the central bank’s last policy statement eight weeks ago despite concerns over Trump’s escalating trade war. Growth and job gains have been “strong” and inflation remains near the central bank’s 2 per cent target, the Federal Open Market Committee said.
Federal Reserve officials raised interest rates for a third time this year and reaffirmed their outlook for further gradual hikes well into 2019, risking fresh criticism from US President Donald Trump. The quarter-point increase boosted the benchmark federal funds rate to a target range of 2 per cent to 2.25 per cent. The move reflected an upbeat assessment of the economy that was identical to the central bank’s last policy statement eight weeks ago, despite concerns over Trump’s escalating trade war.
Growth and job gains have been “strong” and inflation remains near the central bank’s 2 per cent target, the Federal Open Market Committee said in its statement Wednesday following a two-day meeting in Washington.
Barring a negative surprise in the economy, updated “dot plot” forecasts made a December rate hike almost certain, as the number of FOMC officials expecting another increase by year-end grew to a bigger majority of 12, from eight in the previous round of projections in June.
In the statement’s only change from the previous one issued August 1, the committee dropped its long-standing description of monetary policy as “accommodative”. That’s an acknowledgment rates have moved closer to the neutral level which neither boosts nor restrains the economy.
Fed Chairman Jerome Powell and his colleagues are trying to pull off a feat the central bank has accomplished only once in its 104-year history: Engineer a soft landing of the economy by raising rates just enough to prevent overheating, but not so much that they trigger a recession.
After eight hikes since late 2015, the fed funds rate is now at the highest level since October 2008, just after the collapse of Lehman Brothers Holdings. Voters on the committee backed the decision 9-0.
Trump isn’t making the Fed’s tricky task any easier. Aside from criticising recent Fed rate hikes, he’s launched a trade war with China that threatens both to slow growth and boost inflation. Tariffs on an additional $200 billion of imported goods from China took effect Monday, along with retaliatory levies from Beijing.
Fed officials remained sceptical that Trump’s tax cuts will result in a persistent boost to economic growth. While they raised projections for expansion this year and next, they predicted that growth would slow to 1.8 per cent by 2021. That’s in line with their estimate for the economy’s long-run potential and contrasts with the Trump administration’s goal of sustained 3 per cent growth.
In their post-meeting statement and updated economic projections, Fed policy makers made no mention of trade worries and showed no sign they would soon halt the upward march of rates.
“The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions and inflation near the committee’s symmetric 2 per cent objective,” the statement said.