Fed hikes interest rates again, raises outlook for more increases in 2018

Posted June 14, 2018

It is the seventh time the bank has raised rates since 2015.

(Kitco News) - Gold prices are holding steady just below the psychological barrier of $1,300 an ounce after the Federal Reserve suggested that it will hike interest rates more aggressively this year and the next as the USA economy continues to grow.

The Federal Open Market Committee voted to lift the target range for the federal funds rate by 25 basis points to between 1.75% and 2%. "Most people who want to find jobs are finding them, and unemployment and inflation are low".

With employers hiring at a solid pace month after month, unemployment has reached 3.8 percent. 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.

"The Fed's path of gradual rate hikes and slow (balance) sheet reduction seems well established at this point. The trajectory of U.S. inflation or the broader USA economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments. USA stocks dropped slightly on the news, notes MarketWatch, and bond yields nudged higher. The dollar pared losses against a basket of currencies.

Burgers behind IHOP name change
IHOP's same-restaurant sales - or sales at locations open at least a year - declined 1.9 percent in its most recent fiscal year. IHOP has more than 1,700 locations in the USA but fewer than 20 in Canada. "We're always going to have pancakes on the menu ".

"The main takeaway is that the economy is doing very well", Fed Chairman Jerome Powell said at a news conference. The Fed chief now holds four such events each year.

The Fed now sees gross domestic product growing 2.8% this year, slightly higher than previously forecast, and dipping to 2.4% next year, unchanged from policymakers' March projections. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast.

The 3.8-percent jobless rate is close to the lowest level ever seen in the U.S. There are more job openings than workers seeking employment in the country for the first time in recorded history, and recent inflation data shows prices inching through the Fed's ideal threshold. "Economic activity has been rising at a solid rate".

Negative for gold though is that the central bank also forecasts tame inflation pressures throughout year. With the economy now nine years into an expansion, the move reflects the steadiness of growth, the job market's strength and inflation that's finally nearing the Fed's target level. For 2020, the Fed foresees a median rate of 3.4 per cent. Powell has repeatedly played down the dot plot as a guide to future interest rates, though investors continue to focus on it. Investors had given just over a 91 per cent chance of a rate rise on Wednesday, according to an analysis by CME Group. The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to 2 per cent inflation. Interest rates on new fixed-rate mortgages could also climb. Powell said incentives in the Republican tax cut legislation could boost investment and lead to higher productivity although the timing was uncertain.

Trump's imposition of tariffs on steel and aluminum imports has enraged US allies.

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