Federal Reserve hikes interest rate, citing "strong" economy

Federal Reserve hikes interest rate, citing

Federal Reserve hikes interest rate, citing "strong" economy

The Fed lifted its short-term rate - a benchmark for many consumer and business loans - by a modest quarter-point to a range of 2 per cent to 2.25 per cent.

"It confirmed that the economy continues to respond positively to the tax cuts and deregulation that were implemented, and that the trend will continue to be higher interest rates, but nothing alarming where it could shake the markets", said Alan Lancz, president of Alan B. Lancz & Associates. "The economic projections and the speech by Chair Fed Powell will be dissected for insights into what the central bank sees in 2019", Alfonso Esparza of OANDA said in a commentary.

The rate hike was the third this year and the seventh in the last eight quarters.

"Where it gets interesting, and there is a lot of uncertainty, is what happens after that".

Trump has previously criticized the Fed for raising interest rates.

The yield on the 10-year Treasury, which is used to set rates on mortgages, stood at 3.08 percent, down from 3.10 percent a day earlier.

The FOMC cited "sustained expansion of economic activity, strong labor market conditions, and inflation neat the Committee's symmetric 2 percent objective" as reasons for the hike.

According to Goldman Sachs, low unemployment could fuel more aggressive rate increases next year.

Economists have cited a raft of possible causes for the slow wage growth.

The US unemployment rate stood near its lowest level since 2001.

It is a "treadmill to nowhere", McBride said.

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At the same time as the USA has seen rates rise, in the United Kingdom and the eurozone they have remained around the ultra-low levels to which they were slashed during the crisis. There are also troubles beyond US borders. Chairman Powell, in his first testimony to Congress in February of 2018, sensed the change, stating that "some of the headwinds the USA economy faced in previous years have turned into tailwinds".

Higher U.S. rates, though, may force more emerging markets to tighten monetary policy to defend their currencies at a time when investors are punishing those with fault lines such as large current-account deficits.

In August, the president said he was "not thrilled" with Powell, his own appointee, for hiking rates.

Asked about the pressure from Trump to keep rates low, Powell said the Fed is focused on its mission to keep the economy healthy and doesn't consider politics in the process. "It washes up on our shores, as well".

The move, which was widely expected, puts the federal funds rate at a range of 2 percent to 2.25 percent. Importantly, as the Fed lowered its estimate of potential real GDP growth from 2.6% in 2010 to 1.9% presently, it lowered its estimate of the appropriate longer-run funds rate consistent with its 2% inflation target by even more, from 4.25% in 2012, to 2.9%, which adjusted for inflation is 0.9% (Chart 1). Now that money is flowing, and now that inflation is ticking up, most analysts say it's about time to ease up off that gas pedal. Mr Trump told CNBC in July he was "not happy about" the Fed raising borrowing costs.

Rates are still low, but investors worry a quick jump would unsettle markets and halt what's become the longest bull market for USA stocks on record.

Its history, however - and that of most central banks, to be fair - would suggest that it has struggled to achieve soft landings in the past. "Hindsight is 20/20, but they have to make policy today".

In their post-meeting statement and updated economic projections, Fed policy makers made no mention of trade worries and showed no sign they would soon halt the upward march of rates. Another increase is expected in December, with more to follow next year.

Ortega said that people should especially watch out for the rates on subprime credit cards - those that target people with substandard credit histories and carry high interest rates.

"Rising rates are going to be good news for savers and bad news for borrowers", Bankrate's McBride says.

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