Fed­eral Re­serve projects fur­ther key rate hikes

Richmond Times-Dispatch Weekend - - BUSINESS - BY MARTIN CRUTSINGER

The Fed­eral Re­serve said Fri­day it ex­pects low un­em­ploy­ment and ris­ing in­fla­tion will keep it on track to raise in­ter­est rates at a grad­ual pace over the next two years. By late 2019, the Fed says its key pol­icy rate should be at a level that will be slightly re­stric­tive for growth.

The Fed’s pro­jec­tion on rate hikes came with re­lease of the cen­tral bank’s semi-an­nual mone­tary re­port to Congress. Fed Chair­man Jerome Pow­ell is sched­uled to tes­tify on the re­port for two days next week.

The Fed last month raised its pol­icy rate for a sec­ond time this year and pro­jected two more hikes in 2018. The mone­tary re­port says the ex­pec­ta­tion is that fur­ther hikes will leave the rate slightly above its neu­tral level by late next year.

The Fed’s pro­jec­tion for the neu­tral rate — the point where mone­tary pol­icy is not stim­u­lat­ing growth or re­strain­ing it — is 2.9 per­cent. With the June rate hike, the cur­rent range for the pol­icy rate, known as the fed­eral funds rate, is 1.75 per­cent to 2 per­cent.

The pol­icy re­port says that of­fi­cials’ me­dian out­look for the fu­ture course of in­ter­est rates would put the pol­icy rate “some­what above” the neu­tral rate by the end of 2019 and through 2020.

The re­port noted that the me­dian pro­jec­tion for the funds rate has it ris­ing to 2.4 per­cent by the end of this year, which would in­di­cate two more rate hikes are up­com­ing in 2018, and then climb­ing to 3.1 per­cent by the end of 2019 and 3.4 per­cent by the end of 2020.

That fore­cast would mean that the Fed’s in­ter­est rates would cross a ma­jor mile­stone next year to­ward a point where Fed in­ter­est rates are no longer be­ing kept low to boost eco­nomic growth and will in­stead be­gin to slightly re­strain growth in an ef­fort to make sure that low un­em­ploy­ment does not cause the econ­omy to over­heat and trig­ger ris­ing in­fla­tion.

The Fed’s in­ter­est rate has not been re­stric­tive for more than a decade. In re­sponse to the 2008 fi­nan­cial cri­sis, the Fed cut its pol­icy rate to a record low near zero in De­cem­ber 2008 and kept it there for seven years. It boosted rates by a mod­est quar­ter-point in both 2015 and 2016 and then raised rates by three times last year as the eco­nomic re­cov­ery be­gan to gain momentum.

Pow­ell will tes­tify next Tues­day be­fore the Se­nate Bank­ing Com­mit­tee and on Wed­nes­day to the House Fi­nan­cial Ser­vices Com­mit­tee.

Pow­ell

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