Fed hikes interest rates, sets three increases for 2019

By The FedFOXBusiness

Federal Reserve raises benchmark interest rate

FBN’s Adam Shapiro on the Federal Reserve’s decision to raise the federal funds rate by a quarter percentage point.

The Federal Reserve on Wednesday raised its benchmark interest rate and expanded its plans to hike rates in 2019 as officials respond to higher inflation and strength in the labor market.

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The central bank rose its target range for the federal funds rate by a quarter- percentage point to 1.5% to 1.75%, marking the sixth increase since 2015. The Fed maintained its forecast for two additional rate hikes in 2018. It now expects to increase rates three times next year, up from its previous outlook of two increases.

Investors are closely watching the Fed at a time when officials are seeking to normalize interest rates, which had remained near zero in the wake of the 2008 financial crisis.

Fed Chair Jerome Powell, who replaced Janet Yellen as the central bank’s top official in February, has said he would support current policy plans to raise interest rates gradually as inflation moves higher. Signs of potentially brisk inflation growth had stoked concern that the Fed would raise rates at a faster pace, roiling stocks earlier this year.

The Fed, however, continued to project that inflation will be at an annualized pace of 1.9% this year before hitting a target of 2% growth in 2019.

“While the Fed officially hasn’t said much in the way of moving from three hikes to four [in 2018], an accelerated rate schedule can’t be dismissed, especially since Powell’s outlook for the U.S. economy has brightened in recent months, to the point where many are calling him a straight-up hawk,” said Mike Loewengart, vice president of investment strategy at E*TRADE.

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Some Fed officials voted during the two-day meeting to put a fourth increase on the 2018 schedule.

The Federal Open Market Committee was widely expected to raise interest rates at its March meeting, and Wall Street had already begun to place higher odds of a third rate hike next year.

On the broader economy, the Fed said it anticipates 2.7% growth in GDP this year, up from 2.5%, noting that the “economic outlook has strengthened in recent months.”

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