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Federal Reserve bumps up U.S. interest rate, signals two more in 2018
14 June 2018, 05:40 | Joann Bryant
Fed Rates Increased for Second Time This Year
By Liz Dominguez
The Fed is looking for interest rates to rise to 3.4% by 2020, unchanged from the previous forecast.
The central bank's new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast.
That also means cardholders soon will be forking over even more money in interest payments annually, an estimated $2.2 billion alone for what's expected to be the Federal Reserve's second rate hike of the year, according to the June Credit Card Debt Report from CompareCards.
Along with rising interest rate expectations.
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".
Also notable was that the Fed deleted about 80 words of its statement that said it expected the economy to "evolve in a manner that will warrant further gradual increases" in rates.
The Fed move came after a two-day meeting where its members discussed the robust state of the U.S. economy and the potential impact of a trade war amid rising tension between the USA and its largest trading partners. This would improve the Fed's communication, Powell said.
That is a welcome step-up from the roughly 2-percent growth averaged throughout the recovery, which was plagued by a series of crises overseas and uncertainties at home, delaying the Fed's tightening plans. In the longer run, it maintained the forecast for 1.8% growth.
Here's the Fed's full statement: "Information received since the Federal Open Market Committee met in May indicates that the labour market has continued to strengthen and that economic activity has been rising at a solid rate". "Ongoing job gains are boosting wages and confidence". The Associated Press reported that while there have been increases, commodities prices other than those for food and energy decreased by 0.3 percent in the past year.
"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability". And their rate increases are addressing the "perceived threat of inflation", not an immediate inflation problem, he said. Risks to the economic outlook appear roughly balanced.
Overall, the FOMC saw the median Fed funds rate at 2.4% at the end of 2018, up from 2.1% at the past five meetings. "The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation". That reflects the fact that the U.S. recovery after the crisis has been stronger, and inflation is getting closer to the Fed's target. More increases are expected this year but the Fed noted "readings on financial and global developments" would factor into its decisions on future increases.
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FOMC raises the target for Fed funds rate by 25bp to 1
And their rate increases are addressing the "perceived threat of inflation", not an immediate inflation problem, he said. More than today's rate hike, the gold market is reacting to the Federal Reserve's guidance on future interest rates.