US Federal Reserve raises interest rates

Jerome Powell

This marks the seventh time the Fed has hiked rates since 2015, per Reuters, and is part of a slow process to return rates to normal levels.

The central bank had projected three to four rate hikes this year as the economy continues to pick up steam and inflation nears the 2% target rate thanks to strong labor market conditions. More increases are expected this year but the Fed noted "readings on financial and global developments" would factor into its decisions on future increases.

Fed Governor Lael Brainard, among the most dovish policymakers least anxious to tighten, said on May 31 "the sizable fiscal stimulus that is in train is likely to provide a tailwind to growth in the second half of the year and beyond".

The unanimous vote brings the federal funds rate to a range of 1.75 to 2 per cent, but the quarterly economic forecasts show central bankers now expect the rate to end the year at 2.4 per cent rather than the 2.1 per cent projected in March. "Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly".

Economists are predicting unemployment will drop slightly to 5.5 per cent, with 18,000 new jobs created. The dollar pared losses against a basket of currencies.

The Fed announcement helped resolved a debate in financial markets over whether the Fed under Jerome Powell, who succeeded Janet Yellen as chairman in February, might see a need to signal a possible acceleration in rate hikes. Should the Fed's expectations prove accurate, its policy would then be meant to slow the economy.

"The economy is in great shape", Powell said. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher.

Even so, raising rates too quickly could prevent vulnerable Americans and pockets of the country still struggling from reaping the benefits of a strong economy. Finally, the median Fed funds rate for the end of 2020 was heldat 3.4%.

U.S. unemployment is already at 3.8 per cent, the lowest since 2000, and the Fed believes it will fall to 3.6 per cent by the end of the year, which would be the best rate since the 1960s.

Consumers can expect interest rates to rise for all types of debt.

In a technical move, the central bank also made a decision to set the interest rate it pays banks on excess reserves - its chief tool for moderating short-term interest rates - at just below the upper level of its target range.

Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory.

The policy statement bypassed discussion about the tensions over the Trump administration's trade policies, including a decision two weeks ago to impose tariffs on steel and aluminium imports from the European Union, Canada and Mexico. Risks to the economic outlook appear roughly balanced.

Related:

Comments

Latest news

EU Withdrawal Bill debate: Day 1
Last year Lee pressed the government to release an economic impact assessment of a hard Brexit put together by the civil service. Several pro-EU Conservative lawmakers said they would join the opposition in voting against the government.

Garmin Adds Music to Vivoactive 3 Smartwatch
Both earn their name thanks to the built-in storage for 500 songs that you can take with you on a run, no phone needed. From playing sports to playing your favorite songs, vĂ­voactive 3 Music is the smartwatch for your active life.

Seen through 2018 lens, 'NAFTA World Cup' in 2026 is, well, awkward
Canada will host men's World Cup matches for the first time, while Mexico gets its first taste of the event since 1986. With FIFA announcing Canada will co-host the 2026 World Cup, fans of the attractive game here in Ottawa are rejoicing.

Royal couple Harry and Meghan coming to Australia in October
The tour for the newlywed royal couple will revolve around the 2018 Sydney Invictus Games which is scheduled from October 20 - 28. Charlotte wore an adorable pair of pink sunglasses as she attempted handstands, ran around with her brother and cheered on dad.

Trump aide apologises for 'inappropriate' comments on Trudeau
The President said he had told fellow G7 nations that the U.S. requires fair market access and end to unfair trading practices. Trump's attacks arrive as the United States and Canada renegotiate the North American Free Trade Agreement alongside Mexico.

Other news