US Federal Reserve lifts rates amid stronger inflation

Lloyd Doyle
June 14, 2018

What took investors by surprise was the Fed's projection that it would increase rates twice in the next few months, which was faster than the market had expected.

In a statement released after the two-day meeting, Federal Reserve officials highlighted a strong labor market and economic activity that has been rising at a solid pace.

The statement omitted previous language saying that the main rate would remain "for some time" below longer-run levels.

ASX futures are down 0.1 per cent, which indicates the Australian share market is expected to open slightly lower, or with little change. 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.

The Federal Reserve on Wednesday announced that it made a decision to raise interest rates, and it signalled plans to do so more times than expected this year. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does. Risks to the economic outlook appear roughly balanced.

The Federal Reserve hiked America's benchmark interest rate a quarter point on Wednesday to 1.75 to 2 per cent, a move that will likely cause a slight increase in mortgage, credit card, auto and small business loan rates.

Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, is scheduled to deliver his comments on the monetary policy in a press conference at 18:30 GMT.


The Fed now foresees four rate hikes this year, up from the three it had previously forecast. USA payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years. Finally, the median Fed funds rate for the end of 2020 was heldat 3.4%. Inflation expectations are slightly higher this year compared to March's forecast of 1.9%.

"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 per cent inflation objective". The projections show inflation rising 2.1% for the next three years.

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".

In a technical move, the central bank also chose 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.

Job growth has consistently outperformed in recent years, driving unemployment down to 3.8 percent in May, the lowest reading since 2000.

USA 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 per cent" would help anchor long-run inflation expectations around the target.

The median estimate for economic growth this year rose to 2.8 per cent from 2.7 per cent in March, with projections unchanged for 2.4 per cent in 2019 and 2 per cent in 2020.

Other reports by Iphone Fresh

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