Fed raises interest rates and signals faster hikes on the way

Fed raises interest rates and signals faster hikes on the way

Fed raises interest rates and signals faster hikes on the way

The Federal Reserve took note of a resilient US economy Wednesday by raising its benchmark interest rate for the second time this year and signaling that it may step up its pace of rate increases.

Policymakers' fresh economic projections, also issued on Wednesday, indicated a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.

Fed Chairman Jerome Powell said at a news conference that the United States economy has strengthened considerably since the 2007-08 recession and is in "great shape". That fourth hike was still up in the air, but inflation has been getting worse and December has become a traditional time for the Fed to flex its muscle.

Fed policymakers projected gross domestic product would grow 2.8 percent this year, slightly higher than previously forecast, and dip to 2.4 percent next year, while inflation is seen hitting 2.1 percent this year and remaining there through 2020.

Powell said the Fed would be anxious if inflation either persistently overshoots or undershoots the 2% target.

The Federal Reserve is widely expected to announce in a statement at 2 p.m. ET that it made a decision to raise interest rates.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as the economy enters a 10th straight year of growth. "The Fed is prepared to be quicker about pushing rates higher".

Peter Ashton, managing director of Eiger FX, said: "Whilst the currency markets had priced in a rate hike as a near certainty, the news that the Fed has boosted its outlook to four rate hikes this year has seen sterling come under renewed pressure".

The Fed's growth forecast for 2019 and 2020 was unchanged, at 2.4 percent and 2 percent, respectively. In early March, the Fed chief told Senators that unemployment - then at 4.1 percent - was "at or near or even below most estimates of the natural rate of unemployment", adding that there was "no evidence that the economy's now overheating".

Boeing and Caterpillar, two blue-chip companies with significant operations in China, both lost around two per cent.

Phillip Securities Research said that it was maintaining Singapore Banking Sector at Accumulate as loans growth remains healthy.

The forecast for real GDP growth for 2018 was revised to 2.8 percent from 2.7 earlier. It would allow the Fed to be less choreographed and more flexible in cutting or raising rates as economic conditions warrant.

The Fed has partially attributed sluggish wage growth to low productivity, or value added per hour on the job, and suggests the situation could stabilize with continued economic growth.

"In view of realised and expected labour market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 per cent".

The US rate hikes are already sending threatening ripples through other economies as capital flows towards the US and the US dollar strengthens.

USA central bankers again emphasized on Wednesday that the goal is "symmetric", and they said in minutes of the May meeting that "a temporary period of inflation modestly above 2 per cent" would help anchor long-run inflation expectations around the target.

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