Fed hikes rate for second time this year

Lloyd Doyle
June 13, 2018

The Federal Reserve is raising its benchmark interest rate for the second time this year and signaling that it may step up its pace of rate increases because of solid economic growth and rising inflation.

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

Fed officials expect to raise interest rates at least once more in 2018 and had been split on a possible fourth hike in their last meeting.

Negative for gold though is that the central bank also forecasts tame inflation pressures throughout year.

"Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly", the Fed wrote in its statement Wednesday announcing the interest rate hike. The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target.

Powell faces a tricky balancing act as the Fed attempts to bring interest rates toward historical averages.

US central bankers again emphasized on Wednesday that the goal is "symmetric", and they said in minutes of the May meeting that "a temporary period of inflation modestly above 2 percent" would help anchor long-run inflation expectations around the target. Ahead of the announcement, markets were pricing in a almost 100% chance of a rate hike.

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT).

They see another three rate increases next year, a pace unchanged from their previous forecast.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run.

On inflation, policy makers forecast a slight overshoot of their target starting in 2018 at 2.1 percent, and running through 2019 and 2020, compared with a 2020 overshoot in March's projections. However, the focus will be on the updated economic projections and the dot diagram, which will reveal the expectations of the number of rate hikes in the remainder of the year. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast. That compares with March's forecasts for 3.8 percent this year and 3.6 percent in the following two years.

Other reports by Iphone Fresh

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