Federal Reserve raises interest rates and signals more hikes

Federal Reserve raises interest rates and signals more hikes

Federal Reserve raises interest rates and signals more hikes

The Federal Reserve announced today that it would raise the target range for the federal funds rate by a quarter of a point.

The median forecast of members of the Fed's rate-setting Federal Open Market Committee puts the benchmark at 3.1 percent at the end of 2019, up from the previous 2.9 percent, which signals four hikes next year rather than three.

And so after what seemed like an arcane and abstract policy change from the Fed on Wednesday, this is the impact that may matter most to those who don't follow the news as closely as they follow their credit-card bill.

The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the U.S. central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.

The central bank did not make a special note of trade in its statement, but Fed Chairman Jerome Powell is expected to discuss the matter in a news conference Wednesday afternoon. 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 labour market conditions, and inflation near the Committee's symmetric 2 per cent objective over the medium term.

Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory.

Phillip Securities Research said that it was maintaining Singapore Banking Sector at Accumulate as loans growth remains healthy.

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While a few items remain on the US central bank's wish list, such as bigger gains in wages and productivity, the main goals of stable prices and full employment are effectively met. After keeping interest rates low for years to boost growth, the central bank is now moving rates back to what economists say is a neutral position.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 per cent in 2020 before dropping to 2.9 per cent in the longer run. That compares with March's forecasts for 3.8 per cent this year and 3.6 per cent in the following two years. Wednesday's statement said the economy is "rising at a solid rate".

The consumer price index was up 2.8 percent from a year ago as of May according to Bureau of Labor Statistics numbers released on Tuesday.

The dot plot showed that eight fed policy makers expected 4 or more 25-bps rate increases in 2018. More increases are expected this year but the Fed noted "readings on financial and worldwide developments" would factor into its decisions on future increases.

Banks, however, are usually slow off the mark in raising the interest rates in response to global news like the US Federal Reserve rate hikes.

. Government data show that hourly earnings are rising at an annualized rate of 2.8 percent, and even a touch more for lower-income workers.

Eurozone growth is slowing down and rising political uncertainty as evidenced by the formation of the Italian government will give the European Central Bank food for thought.

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