Stocks Close Lower As Fed's Comments Spark Turbulence

07 April, 2018, 00:43 | Author: Shannon Aguilar
  • NAIRU Fed projections Federal Reserve March 2013

The Fed raised rates to a range of 1.5 per cent to 1.75 per cent, as was widely expected, and newly appointed chairman Jerome Powell indicated that inflation should "move up in coming months and stabilise" at the two per cent target.

Wednesday's announcement marked the Fed's sixth rate hike since late 2015 and the first move under Powell, who took the helm of the central bank in February.

"Despite speculation that the Fed might signal a more aggressive approach to tightening monetary policy this year, the projection of three rate hikes in 2018 is in line with expectations", Bob Baur, chief global economist at Principal Global Investors, which manages $445 billion, said in an email. At the December meeting, Fed officials estimated 2.5 percent economic growth this year ahead of the passage of Republican tax cuts and plans to increase government spending.

The Fed's preferred inflation rate rose to 1.7% in the 12 months to January and central bankers expected it to reach 2% in 2019 and 2.1% in 2020, according to recent estimates.

The Fed anticipates it will increase interest rates three more times in 2018. He began his membership on the Federal Reserve Board in 2012, so he understands what Yellen was trying to do even though he thought interest rates were lower than they should be.

More so given recent reports that Trump would announce an increase in tariffs on Chinese imports this week and that China is already considering slapping higher tariffs on U.S. agricultural exports. This marks an increase from the 2.1% GDP growth forecast for 2018 by officials in September 2017.

"Employment growth has been strong in recent months, and the unemployment rate remains low", says the statement of the Federal Open Market Committee.

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Increases are passed on to other borrowers, mostly consumers, through higher rates on things like credit-card debt.

In addition, the Fed raised the estimated longer-term "neutral" rate, the level at which monetary policy neither boosts nor slows the economy.

Analysts are divided on exactly how many increases will occur this year. Because the economy is growing significantly faster than expected, officials see rising pressure on resources which could mean more changes to come.

Similarly, the Fed forecast the jobless rate to fall to as low as 3.6% in 2019 from the current rate of 4%.

"We are trying to take the middle ground here", Powell stated, adding that there are no signs that the economy is on the cusp of accelerating inflation.

Projections for the unemployment rate was lowered to 3.8% this year (from 3.9% in the December forecast) and 3.6% for 2019 and 2020 (from 3.9% and 4.0%, respectively).

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 U.S. central bank's 2.9 per cent estimate of the neutral rate that neither restrains growth nor pushes it forward.



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