Published: Thu, June 14, 2018
Finance | By Loren Pratt

Fed raises interest rates as unemployment nears record lows

Fed raises interest rates as unemployment nears record lows

Five dealers saw three increases, and another five estimated four hikes, while six projected the Fed lifting rates just twice next year.

According to CNBC, the Reserve released new data this week showing the GDP forecast rose to almost 3%, up from the previous predictions of 2.7%.

The Federal Reserve took note of a resilient USA economy Wednesday by raising its benchmark interest rate for the second time this year and signalling that it may step up its pace of rate increases.

Read the full report at CNBC.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as the economy enters a 10th straight year of growth.

In its updated forecasts, the Fed envisions stronger growth this year - 2.8 per cent, up from the 2.7 per cent it predicted in March.

The Fed last raised the benchmark in March, the sixth increase since December 2015, as it tries to keep the economy growing at a sustainable pace without fuelling inflation. In a few hours, several banks will respond by raising their prime lending rate, the starting point of borrowing costs for nonmortgage loans like credit cards and auto loans.


The US has now added jobs every month for 92 consecutive months and wages, which have stagnated since the recession, have begun to rise moderately.

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". Fed officials project their preferred gauge of inflation hitting 2.1 percent in the fourth quarter of this year, compared to 2019 in the March forecast. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast.

"Household spending has picked up while business fixed investment has continued to grow strongly", the Fed said.

The Fed said its policy of further gradual rate increases will be "consistent with a sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2% objective".

Economists said the Fed left little doubt that it's prepared to increase the pace of its credit tightening to guard against high inflation later on. 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 global developments.

The 3.8-percent jobless rate is close to the lowest level ever seen in the U.S. There are more job openings than workers seeking employment in the country for the first time in recorded history, and recent inflation data shows prices inching through the Fed's ideal threshold.

"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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