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Fed Raised Rates by 25 bps with Revised Economic Forecasts

Fed Raised Rates by 25 bps with Revised Economic Forecasts

Janet Yellen pictureRecently, a meeting took place between the members of US Federal Open Market Committee (FOMC) on Tuesday and Wednesday to set the monetary policy. When the meeting concluded, the committee released its policy statement, revised the economic forecasts and “dot plot” projection of future benchmark rate hikes.

Janet Yellen, the Chairperson of FOMC, held a joint press conference at 14:30 hours Eastern Time.

As expected, the benchmark rates have been increased by 25 basis points by US Federal Reserve (FED) between the range of 1.25 percent and 1.5 percent.

Two Fed Presidents namely Neel Kashkari of Minneapolis and Charles Evans of Chicago have voted against the rate hike. The increase in benchmark rates would have a direct impact on a variable rate mortgage and credit cards. This is the Q3 point move in 2017. The aim of Fed Reserve to increase rates three times next year remains unchanged. However, the Central Bank is expecting only two rate hikes in 2019.

It is to be noted that GDP growth estimate has been raised by FOMC for 2018 to 2.5 percent from 2.1% issued in September 2017. The revision came after two back to back quarters of minimum 3 percent growth. The US economy expects to increase the annualised rate to 3 percent in Q4 of 2017. But the Federal Reserve is planning the growth to get back to 2.1% and 2% in 2019 and 2020 respectively. Still, the projected increase is more than the speculated growth expected at 2%, and 1.8% made three months earlier.

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The unemployment rate has been curtailed to 3.9 percent in 2018 and 2019. It is expected the unemployment rate to be 4% for 2020 from expected 4.2%. There is no change in the long-term unemployment rate which is 4.6%. In the US, the current unemployment rate is 4.1 percent.

The inflation rate forecast for 2018 has been upwardly revised to 1.7 percent from earlier 1.6 percent. But the Federal Reserve has cautioned people that inflation rate would fail to meet the targeted 2% level until the end of 2019. The primary currency of US is also not expected to remain range-bound against major currencies of the world as rate hike was already priced in.

At the moment, the inflation rate is below the target level of 2% projected by Fed. Still, the officials at US Federal Reserve went ahead and increased the benchmark rates as the central bank is looking for tight financial conditions. US Federal Reserve by expanding the yield curve wants to create a growth resistance and steady economic growth without overheating.

But, two rate hikes in the recent times have failed to deliver the desired results. This is quite evident from the routine record high made by the stock exchange. Also, there have been no changes in the yield of Treasury in the past ten years.

The hike in the benchmark rates was no surprise as William Dudley who is the New York Fed President has repeatedly informed people that US Federal Reserve would increase the prices at regular intervals if the financial conditions do not tighten.

US Federal Reserve has projected three benchmark interest hike for 2018. Some analysts think there could be four interest hikes due to tax reforms. Fed would not give such a hint until Jerome Powell becomes the next Chairman of Fed Reserve.

Ed Lamadrid

Ed Lamadrid

I'm Ed Lamadrid, a CPA, blogger and a forex trader. Welcome to Top10FX.net. Follow my website for the most trustworthy forex broker reviews and last minute financial trading news.

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