Published: Sat, April 07, 2018
Money | By Wilma Wheeler

Fed's Bostic sees two more interest-rate hikes this year

Fed's Bostic sees two more interest-rate hikes this year

That was an increase of a quarter of a percentage point. "In theory, a individual tax bill that lowers tax rates should encourage more labor force participation".

The Fed had kept the near-zero rate unchanged for seven years, before starting to tighten monetary policy in December 2015.

Normally, a hike in interest rate in the U.S. does not augur well for the emerging markets and commodities.

Stocks rallied after the announcement.

The Feds may hike interest rates at this meeting, and that means Trump's Goldilocks economic policy might take a big hit where it hurts - in his base camp and public opinion.

While investors and economists will spend the next few days deciphering what the rate hike and projected path of future hikes means for the economy, the lastest hike will hit your wallet nearly immediately. But it makes sense as the tax cuts should hype growth in a tight labor market environment and it will be the Fed's job to make sure that faster expansion doesn't get transmitted into too strong inflation.

Oddly, the Fed kept its inflation forecast for the next two years the same even though it sees a stronger economy and falling unemployment rate.

The median estimate for economic growth this year rose to 2.7% from 2.5% in December, signaling confidence in USA consumers despite recent weak readings on retail sales that have pushed down tracking estimates of first-quarter activity. That fits with recent history: Over the most recent economic cycle prior to this one, Fed rates averaged 2.94 percent.

In the time since December 2015, when Yellen approved the first interest rate increase in nearly a decade, rates on consumer loans have slowly crept up - but are still far below pre-recession levels.

The policy move leaves central bankers with room to assess whether they will need to raise rates faster to prevent the economy from overheating. Officials hoped lower rates would prompt consumer spending and bank lending, among other things.

The Fed projected three rate hikes this year at its December meeting, but investors took an upbeat assessment of the USA economy by Powell late last month as an indication that a fourth rate hike could be on the cards.

Powell's job is to keep the economy churning without starting a recession during his four-year term - a risk the Fed chair has said he does not see as imminent.

In a statement ending its latest policy meeting, the Fed boosted its key short-term rate Wednesday by a modest quarter-point to a still-low range of 1.5 percent to 1.75 percent. The magnitude of the impacts on worldwide capital flows, business fixed investment, productivity, exchange rates, and inflation are all very hard to gauge, making the Fed's job very challenging in 2018. Needless to say, without a volatile reaction, it's hard to tell if we can call the Fed hawkish or dovish, however, the central bank's language has me leaning towards the hawkish side.

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