The Federal Reserve raised the target range for the federal funds rate by another quarter point to 1.5-1.75 per cent at the conclusion of its two-day policy meeting, sending a signal that it would not let the economy overheat.
The vote to lift the federal funds rate target range was a unanimous 8-0.
The rate increase, under the new Fed chairman Jerome Powell, had been widely expected by financial markets. Policymakers continue to project a total of three increases this year as they pursue a return to more normal interest rate levels, but the Fed’s projections point to an extra increase in 2019, for a total of three rises that year, with more tightening in 2020.
Some Wall Street analysts expect four quarter-point rate rises in 2018 given the buoyant labour market, strong growth overseas and massive economic stimulus signed by President Donald Trump, in the form of a $1.5 trillion tax cut and federal spending increases, that is set to trigger $1 trillion fiscal deficits as early as next year.
The midpoint of the Fed’s target range will now reach 3.4 per cent by 2020, higher than the 3.1 per cent predicted previously and above the US central bank’s 2.9 per cent estimate of the neutral rate that neither restrains growth nor pushes it forward.
The median estimate for economic growth this year is 2.7 per cent, up from 2.5 per cent in the December outlook.
The Fed’s favoured measure of core year-on-year price growth was 1.7 per cent in the 12 months to January (inflation has remained persistently muted throughout the current expansion), but policymakers are getting more confident about the outlook for price growth. Core inflation will rise to 2.1 per cent next year, according to Fed forecasts, slightly above the target.
The US jobless rate held at 4.1 per cent in February, while payroll employment expanded by a robust 313,000. Wage growth, however, remained moderate. Policymakers predict the unemployment rate to fall to 3.8 per cent this year and 3.6 per cent next year. That would be well below the Fed’s 4.5 per cent estimate of the longer-run sustainable rate of unemployment.
Photo: Federalreserve
