Fed bumps up interest rates
A fourth increase coming later this year, it says.
WASHINGTON – The economy has been cruising lately and so the Fed is tapping on the brakes once again.
Upgrading its economic outlook, the Federal Reserve on Wednesday raised its key short-term interest rate by a quarter point for the third time in 2018 and kept its forecast for another hike later this year.
“Our economy is strong, growth is running at a healthy clip, unemployment is low,” Fed Chairman Jerome Powell said at a news conference. “This is a good moment for the U.S. economy.”
The Fed’s rate hike is expected to ripple through the economy, lifting borrowing costs for variable-rate consumer loans such as credit cards, home equity lines of credit, autos and adjustablerate mortgages. While the effects of a single hike are modest, the central bank has bumped up its benchmark rate eight times since late 2015, increasing monthly payments for borrowers.
The good news is the strategy is also finally pushing up bank savings and CD rates for Americans who have made do with paltry returns for many years.
The Fed raised the federal funds rate – the rate banks charge each other for overnight loans – by a quarter point to a range of 2 to 2.25 percent. The central bank held the rate near zero for years after the financial crisis and recession of 2007-09, then nudged it up only gently.
But with unemployment at 3.9 percent, near an 18-year low, and economic growth ratcheting higher, Fed policymakers have stepped up the pace of rate increases this year in a bid to head off an eventual spike in inflation.
In a statement after a two-day meeting, the Fed removed its prior assertion that interest rate policy “remains ac- commodative,” an acknowledgment that rates are drifting closer to normal levels. Still, Powell added that rates remain low by historical standards,
The robust economy can partly be traced to Trump administration-led tax cuts and spending increases.
The Fed’s statement steered clear of any mention of the administration’s escalating trade war with other countries. Powell said it could hobble the economy if it persists but provide a boost if it’s resolved favorably for the U.S. by lowering tariffs on U.S. exports.
“We’ve been hearing a rising chorus of concerns from businesses around the country,” Powell said. But he added that while higher U.S. tariffs that boost consumer prices pose “a risk,” he added that, “we’re not seeing it yet” in overall inflation. And even if all proposed tariffs are imposed, the impact could still be relatively mild based on economic forecasts, he said.
The Fed reiterated it plans “further gradual increases” in its benchmark rate. It maintained its forecast for a fourth rate hike this year and three more in 2019. Fed officials expect the key rate to rise to 2.4 percent at the end of the year, 3.1 percent at the end of
2019 and 3.4 percent at the end of
2020, according to median estimates.