Fed: Interest rates to rise with US economy

US Federal Reserve officials followed through on an expected interest-rate increase on Wednesday and raised their forecast for economic growth in 2018, even as they stuck with a projection for three hikes in the coming year.

“This change highlights that the committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers and rising wages,” Chair Janet Yellen told reporters Wednesday in Washington following the decision.

In her final scheduled press conference, Yellen noted that her nominated successor, Jerome Powell, has been part of the consensus shaping the Fed’s gradual rate-hike strategy.

“The most important takeaway from the December FOMC meeting is that even though policymakers are becoming more bullish on economic prospects, they are not shifting to a more hawkish policy stance. An extended inflation soft patch is giving the Powell-Fed a free pass to continue along Janet Yellen’s gradualist path toward policy normalization,” stated Carl Riccadonna and Yelena Shulyatyeva of Bloomberg Economics.

In a key change to its statement announcing the decision, the Federal Open Market Committee omitted prior language saying it expected the labor market would strengthen further. Instead, Wednesday’s missive said monetary policy would help the labor market “remain strong”. That suggests Fed officials expect improvement in the job market to slow.

The yield on 10-year US Treasury notes fell after the Fed announcement. Stocks jumped after the Fed before paring gains.

Yellen said the high stock valuations don’t necessarily mean that they’re overvalued and that she’s not seeing a worrisome buildup of leverage or credit.

The 7-2 vote for the rate move, the Fed’s third this year, raises the benchmark lending rate by a quarter percentage point to a target range of 1.25 percent to 1.5 percent.

Through the policy adjustments and the statement, the Fed continued to seek a delicate balance between responding to positive news on growth and unemployment that encouraged gradual tightening, while signaling caution due to persistently weak inflation readings.

“Hurricane-related disruptions and rebuilding have affected economic activity, employment and inflation in recent months but have not materially altered the outlook for the national economy,” the Fed said.