When we can expect the Fed to hike interest rates again

Posted June 15, 2018

The widely-anticipated decision will lift the target for the central bank's benchmark rate to 1.75%-2%, the highest level since 2008.

The US central bank moved the target range for its federal funds rate to 1.75 per cent to two per cent.

The ECB, which presiding over negative official rates and its version of the Fed's "quantitative easing" - bond purchases that have seen it buy €2.5 trillion ($3.7 trillion) of government and corporate bonds in only three years -, isn't expected to raise rates or further reduce a program that peaked at €80 billion of assets purchases a month in 2016, and is now running at a monthly €30 billion.

Policymakers' fresh economic projections, also issued on Wednesday, indicated a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.

With two rate hikes already announced, we can see two more in 2018.

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A decade after the recession, the Fed has made progress on its objectives. "Household spending has picked up while business fixed investment has continued to grow strongly".

Benchmark 10-year US Treasury notes last fell 6/32 in price to yield 2.9774 percent, from 2.957 percent late on Tuesday.

The forecast for real GDP growth for 2018 was revised to 2.8 percent from 2.7 earlier.

"The Fed deserves tremendous credit for steering the economy to calmer waters, supporting what is likely to be the longest expansion in USA history while meeting inflation and employment objectives", said Stephen Gallagher, chief US economist at Societe Generale.

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", Mr Powell told reporters. At this point, there's been little evidence that wage or price inflation is accelerating.

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Nor is the Fed obligated to hike rates just because it has publicly said it will do so.

There are rising concerns about trade more generally and the potential risks to the economic outlook. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. More increases are expected this year but the Fed noted "readings on financial and global developments" would factor into its decisions on future increases. "Auto loans growth spiked to 5-year highs with a rise of 7.8% YoY in April".

At the same time stock markets remain close to record highs and inflation has accelerated. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments.

Eurozone growth is slowing down and rising political uncertainty as evidenced by the formation of the Italian government will give the European Central Bank food for thought.

"Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams".

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