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Abu Dhabi, UAEFriday 17 August 2018

Jerome Powell lauds US economy as Fed raises rates

Policymakers are expecting there to be four rises during the whole of 2018 by the Federal Reserve

Jerome Powell, chairman of the Federal Reserve, speaks during a news conference following a Federal Open Market Committee meeting. Bloomberg
Jerome Powell, chairman of the Federal Reserve, speaks during a news conference following a Federal Open Market Committee meeting. Bloomberg

US Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected.

The so-called "dot plot" released on Wednesday showed eight Fed policymakers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March. The number viewing three or fewer hikes as appropriate fell to seven from eight. The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy.

Chairman Jerome Powell told reporters following the decision – which lifted the Fed’s benchmark rate by a quarter percentage point to a range of 1.75 per cent to 2 per cent – that the main takeaway was that “the economy is doing very well”.

Mr Powell also announced he plans to start holding a press conference after every meeting in January, cautioning that “having twice as many press conference does not signal anything”. The Fed chief currently speaks to reporters after every other meeting of policymakers.

The Federal Open Market Committee indicated that even though it’s stepping up the pace of interest-rate hikes, economic growth should continue apace.

“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,” according to its statement following a meeting in Washington.

The statement omitted previous language saying that the main rate would remain “for some time” below longer-run levels. Other changes included referring to “further gradual increases” instead of “adjustments”. Officials also said that “indicators of longer-term inflation expectations are little changed”. Previously, the statement made separate references to survey-based and market-based measures of such expectations.

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