US Fed raises policy rate by 25 bps; two more hikes seen in 2018
Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected.
The so-called “ dot plot” released Wednesday showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March. The number viewing three or fewer hikes as appropriate fell to seven from eight. The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy.
Key highlights of the Fed meet:
- Median forecast signals two more hikes in 2018
- Fed sees three rate increases next year
- It was seventh rate hike by Fed in this cycle
- Fed lowers inflation forecast
- Fed leaves GDP forecast largely unchanged
The Federal Open Market Committee indicated that even though it's stepping up the pace of interest-rate hikes, economic growth should continue apace. “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee's symmetric 2 percent objective over the medium term,” according to its statement following a meeting in Washington.
The statement omitted previous language saying that the main rate would remain “for some time” below longer-run levels. Other changes included referring to “further gradual increases” instead of “adjustments.” Officials also said that “indicators of longer-term inflation expectations are little changed.” Previously, the statement made separate references to survey-based and market-based measures of such expectations.