Fed raises rates for 3rd time this year with 1 more ex­pected

The Myanmar Times - Weekend - - International Business -

THE Fed­eral Re­serve sig­naled its con­fi­dence Wed­nes­day in the U.S. econ­omy by rais­ing a key in­ter­est rate for a third time this year, fore­cast­ing an­other rate hike be­fore year’s end and pre­dict­ing that it will con­tinue to tighten credit into 2020 to man­age growth and in­fla­tion.

The Fed lifted its short-term rate — a bench­mark for many con­sumer and busi­ness loans — by a mod­est quar­ter­point to a range of 2 per­cent to 2.25 per­cent. It was its eighth hike since late 2015. The cen­tral bank also stuck with a pre­vi­ous fore­cast for three more rate hikes in 2019.

In a state­ment af­ter its lat­est pol­icy meet­ing, the Fed dropped phras­ing it had long used that char­ac­ter­ized its pol­icy as “ac­com­moda­tive” — that is, fa­vor­ing low rates. The Fed had used vari­a­tions of that pledge in the seven years that it kept its key rate at a record low near zero and over the past nearly three years in which it’s grad­u­ally tight­ened credit.

By re­mov­ing that lan­guage, the Fed may be sig­nal­ing its re­solve to keep rais­ing rates. In a news con­fer­ence af­ter its meet­ing, though, Chair­man Jerome Pow­ell said the re­moval of the “ac­com­moda­tive” lan­guage did not amount to a pol­icy change.

“Our econ­omy is strong,” Pow­ell de­clared at the start of his news con­fer­ence. “Growth is run­ning at a healthy clip, unem­ploy­ment is low. The num­ber of peo­ple work­ing is ris­ing steadily, and wages are up. In­fla­tion is low and sta­ble, all of these are very good signs.”

The chair­man added, though: “That’s not to say every­thing is per­fect. The ben­e­fits of this strong econ­omy have not reached all Amer­i­cans. Many of our coun­try’s eco­nomic chal­lenges are be­yond the scope of the Fed.”

The Fed’s ac­tions and its up­dated eco­nomic fore­casts Wed­nes­day had been widely an­tic­i­pated. Ini­tially, there was lit­tle re­ac­tion in the stock or bond mar­kets. But later in the af­ter­noon, stocks sold off, and ma­jor in­dexes closed mod­estly lower.

“The Fed stuck to script to­day, push­ing ahead with an­other rate hike,” said Michael Pearce, se­nior U.S. econ­o­mist at Cap­i­tal Eco­nom­ics.

But Pearce added, “Our view is that of­fi­cials are still un­der­es­ti­mat­ing just how quickly the econ­omy is likely to lose mo­men­tum next year.”

He said he ex­pects the Fed to sus­pend its rate hikes by mid-2019 — and then feel com­pelled to cut rates by early 2020 to sup­port the econ­omy.

In its up­dated out­look Wed­nes­day, the Fed fore­sees one fi­nal rate hike af­ter 2019 — in 2020 — which would leave its bench­mark at 3.4 per­cent. At that point, it would re­gard its pol­icy as mod­estly re­strain­ing growth. The Fed seeks to slow the econ­omy when it reaches full em­ploy­ment to pre­vent a tight job mar­ket from rais­ing in­fla­tion too high.

Dur­ing a late-af­ter­noon news con­fer­ence in New York, Pres­i­dent Don­ald Trump said he was “not happy” about the Fed’s lat­est rate hike. In a highly un­usual move for a pres­i­dent, Trump has pub­licly com­plained that the Fed’s rate in­creases could blunt his ef­forts to boost growth through tax cuts and dereg­u­la­tion.

Ear­lier, Pow­ell said dur­ing his news con­fer­ence that such out­side crit­i­cism would have no ef­fect on the Fed’s use of rates to try to max­i­mize em­ploy­ment and sta­bi­lize prices.

“We’ve been given a re­ally im­por­tant job to do on be­half of the Amer­i­can peo­ple,” Pow­ell said. “My col­leagues and I are fo­cused, ex­clu­sively, on car­ry­ing out that mis­sion.”

The Fed’s lat­est fore­cast pre­dicts that the unem­ploy­ment rate, now 3.9 per­cent, will reach 3.7 per­cent by the end of this year and then 3.5 per­cent next year. Not since the late 1960s has unem­ploy­ment fallen that low.

The cen­tral bank ex­pects unem­ploy­ment to be­gin ris­ing to 3.7 per­cent at the end of 2021. It fore­sees the econ­omy grow­ing 3.1 per­cent this year be­fore slow­ing to 2.5 per­cent in 2019, 2 per­cent in 2020 and 1.8 per­cent in 2021. The Fed sees the econ­omy’s lon­grun growth at a 1.8 per­cent an­nual rate — far be­low the Trump ad­min­is­tra­tion’s pro­jec­tions for a sus­tained rate of 3 per­cent.

Many an­a­lysts think the econ­omy could weaken next year, in part from the ef­fects of the trade con­flicts Trump has pur­sued with China, Canada, Europe and other trad­ing part­ners. The tar­iffs Trump has im­posed on im­ported steel and Chi­nese goods, in par­tic­u­lar, com­pli­cate the Fed’s de­ci­sion­mak­ing.

That’s be­cause the tar­iffs — and the re­sult­ing re­tal­i­a­tion from Amer­ica’s trad­ing part­ners — could weaken the U.S. econ­omy. The Fed would nor­mally re­spond to weaker growth by cut­ting in­ter­est rates. But tar­iffs, which are an im­port tax, can in­flate prices. And the Fed typ­i­cally coun­ters higher in­fla­tion by rais­ing rates.

Me­gan Greene, global chief econ­o­mist at Man­ulife As­set Man­age­ment, said she thought the tar­iffs were more likely to slow the econ­omy than to ac­cel­er­ate in­fla­tion.

“The real risk of trade wars,” Greene wrote last week, “is a hit to growth, not a boost to in­fla­tion.”

In­deed, the Fed’s re­gional banks have re­ported that some busi­nesses are de­lay­ing in­vest­ments un­til they see some res­o­lu­tion to the trade hos­til­i­ties. In his news con­fer­ence, Pow­ell said some com­pa­nies have told Fed of­fi­cials that the tar­iffs have raised fears that sup­ply chains will be dis­rupted and raw ma­te­ri­als will cost more.

Pow­ell said he had yet to see ev­i­dence that the ad­min­is­tra­tion’s tar­iffs have raised prices for many con­sumers. But he said ris­ing in­fla­tion re­mains a threat re­sult­ing from Trump’s trade poli­cies.

“It’s a con­cern,” Pow­ell said. “It’s a risk. You could see prices mov­ing up. You don’t see it yet. But you could see re­tail prices mov­ing up. The tar­iffs might pro­vide a ba­sis for com­pa­nies to raise prices in a world where they’ve been very re­luc­tant to and un­able to raise prices.” – AP

Newspapers in English

Newspapers from Myanmar

© PressReader. All rights reserved.