Fed Lifts Interests Rates, Signals More Hikes
Chairman Jerome Powell says the economy remains strong and the Fed expects “gradual increases” in the federal funds rate.
The Federal Reserve has voted unanimously to raise interest rates yesterday, lifting the target range by a quarter of a percent to between 2% and 2.25%, according to a press release from the Fed’s Board of Governors.
In making the move, the central bank pointed to a continually strengthening labor market, with unemployment remaining low, and a growing economy, bolstered by gains in household spending and business fixed investment. The Fed is also expected to announce another rate hike in December, followed by several more hikes in 2019 and one more hike in 2020, according to Reuters. The outlook for 2019 isn’t clear: four Fed members expect two interest-rate increases next year, another four see three hikes, and others anticipate as many as four, according to Bloomberg.
“They are going to feel their way along toward a notion of neutral,” Dennis Lockhart, former president of the Fed Bank of Atlanta, tells Bloomberg TV.
Market analysts, meanwhile, appear to agree that the Fed will increase rates at least twice next year, according to Bloomberg. The additional tightening could lead to more market volatility, Lachlan McPherson, a senior investment consultant with Charles Schwab, tells the news service.
Morgan Stanley’s Matthew Hornbach tells Bloomberg that after three rate increases through June 2019, “we expect the shape of growth to be interpreted as a sign the Committee has reached neutral and sees the need to pause.”
Several analysts have pointed out that the Fed has removed the word “accommodative” that it has long used in describing its monetary policy, but Powell dismissed any potential speculation about the Fed’s approach, Bloomberg writes.
“This change does not signal any change in the likely path of policy,” Powell said in a press conference yesterday, according to the news service. “We still expect, as our statement says, further gradual increases in the target range for the fed funds rate.”
Powell also appeared cautiously optimistic about a lack of impact on the U.S. economy from a possible trade war following president Donald Trump’s decision to imposed $200 billion worth of tariffs on Chinese imports, according to the Financial Times. While conceding that the tariffs could lead to higher consumer prices, Powell said the Fed has seen no evidence of it thus far, according to the paper.
“And we are watching it very carefully,” he said, according to the FT.
This is the Fed’s sixth hike since Trump became president in January 2017, and the third this year under Powell, who took over from Janet Yellen in February after being nominated by Trump. The president has been critical of past hikes, and just hours after the Fed’s announcement, Trump expressed disappointment in the most recent increase.
“We are doing great as a country,” Trump said yesterday at a New York press conference, Bloomberg writes. “Unfortunately they just raised interest rates a little bit because we are doing so well. I am not happy about that.”
When asked about any pressure from Trump on the Fed’s decision, Powell said at his press conference that the Fed doesn’t “consider political factors,” according to Bloomberg.
“That’s who we are. That’s what we do. And that’s just the way it’s always going to be for us,” Power said, according to the news service.
The S&P 500 fell on Wednesday and global stocks dropped this morning, according to the Wall Street Journal.