US Fed­eral Re­serve...

Daily Mirror (Sri Lanka) - - LIFE -

Wall Street was not happy with the ag­gres­sive new stance, wor­ried that it sig­naled con­cerns about ris­ing prices. All three ma­jor in­dexes turned neg­a­tive right af­ter the an­nounce­ment and closed even lower.

The Dow Jones In­dus­trial Av­er­age dropped 0.5 per­cent and the broad-based S&P 500 shed 0.4 per­cent.

How­ever, Pow­ell down­played con­cerns about ac­cel­er­at­ing in­fla­tion, say­ing the Cen­tral Bank would not over­re­act to an ex­pected uptick driven by the re­cent in­crease in oil prices and would aim for the rate to hold at around two per­cent for a “sus­tained” pe­riod.

“We know in­fla­tion is go­ing to bounce around,” he told re­porters. “We didn’t over­re­act, I think, to in­fla­tion be­ing un­der two per­cent. We won’t over­re­act to it be­ing over two per­cent.”

The Fed last raised the bench­mark in March, the sixth in­crease since De­cem­ber 2015 as it tries to keep the econ­omy grow­ing at a sus­tain­able pace with­out fu­el­ing in­fla­tion.

The FOMC state­ment stressed that ris­ing rates were un­likely to de­rail eco­nomic growth which the com­mit­tee now char­ac­ter­izes as “strong” rather than “mod­er­ate.”

In an­other slight change of lan­guage -- some­thing that al­ways draws the scru­tiny of Fed­watch­ers - it said “fur­ther grad­ual in­creases” in the key rate “will be con­sis­tent with sus­tained ex­pan­sion of eco­nomic ac­tiv­ity, strong labour mar­ket con­di­tions and in­fla­tion near the Com­mit­tee’s sym­met­ric two per­cent ob­jec­tive over the medium term.”

The use of the terms “sym­met­ric” and “medium term” is a clear in­di­ca­tion the Fed is not in a hurry to get in­fla­tion to two per­cent and will be com­fort­able if prices rise above that level for a short time -- which Pow­ell con­firmed.

Even so, Jim O’sul­li­van of High Fre­quency Eco­nom­ics, sum­ma­rized the Fed’s out­look as “a bit more hawk­ish than ex­pected.”

In its quar­terly Sum­mary of Eco­nomic Pro­jec­tions, of­fi­cials pro­jected the Fed’s pre­ferred in­fla­tion mea­sure would ac­cel­er­ate only slightly, end­ing this year at 2.1 per­cent rather than 1.9 per­cent, and hold­ing at that level through 2020.

That index cur­rently is at two per­cent but other mea­sures of con­sumer and pro­ducer prices have ac­cel­er­ated, pushed by ris­ing fuel prices, as well as higher met­als prices that could be the re­sult of the steep im­port tar­iffs Trump im­posed start­ing in March.

Pow­ell said the Fed would con­tinue to watch prices and em­ploy­ment data closely to gauge the im­pact of in­fla­tion and the trade poli­cies on the eco­nomic out­look.

The quar­terly eco­nomic fore­casts show cen­tral bankers now ex­pect the bench­mark rate to end the year at 2.4 per­cent rather than at the 2.1 per­cent pro­jected in March. And the me­dian fore­cast for the end of 2019 is 3.1 per­cent, up from the pre­vi­ous 2.9 per­cent, which sig­nals four hikes this year and next.

Pow­ell also said the re­cent tax cuts were ex­pected to pro­vide stim­u­lus to the econ­omy.

How­ever, the FOMC’S eco­nomic growth fore­casts were lit­tle changed, with 2018 GDP seen ris­ing 2.8 per­cent rather than 2.7 per­cent but un­changed at 2.4 per­cent in 2019 and two per­cent in 2020.

The al­ready his­tor­i­cally low un­em­ploy­ment is pro­jected to fall even fur­ther, end­ing the year at 3.6 per­cent be­fore set­tling at 3.5 per­cent in 2019 and 2020.

Pow­ell also an­nounced that he would hold a press con­fer­ence af­ter ev­ery pol­icy meet­ing, rather than the cur­rent quar­terly sched­ule.

The change will start in Jan­uary fol­low­ing the meet­ings that are sched­uled roughly once ev­ery six weeks, to give the Fed “more op­por­tu­ni­ties to ex­plain our ac­tions,” Pow­ell told re­porters.

But he said “hav­ing twice as many press con­fer­ences does not sig­nal any­thing about the tim­ing or the pace of in­ter­est rate changes.”

Economists had pre­dicted the Fed would make this change to over­come the com­mon view that the cen­tral bank only moves rates at meet­ings that in­clude press con­fer­ences, which lim­its its op­tions.

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