Published: Thu, June 14, 2018
Markets | By Otis Pena

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

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

The US Federal Reserve has voted to raise the target for its benchmark interest rate by 0.25%, citing solid economic expansion and job gains.

The rate move was not a surprise in any sense of the word, given that Fed funds futures were pricing in a 100% chance of a 25-bps hike today; as has become the expectation, the Fed changed its policy when it had a new Summary of Economic Projections in hand.

That also means cardholders soon will be forking over even more money in interest payments annually, an estimated $2.2 billion alone for what's expected to be the Federal Reserve's second rate hike of the year, according to the June Credit Card Debt Report from CompareCards.

Fed officials also said they expect to raise rates twice more this year, faster than previously forecast.

The central bank's new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast. "The Fed is prepared to be quicker about pushing rates higher".

But Powell added, "For now, we don't see that in the numbers at all".

In a notable change to its statement, the Fed removed language indicating that it expected the economy to grow at a pace warranting "gradual" rate increases.

Trump has slapped tariffs on steel and aluminum imports, has threatened additional tariffs on Chinese imports and has directed his administration to consider further duties on imported cars. At the same time, they project the unemployment rate to fall to 3.6 percent this year, down from earlier projections of 3.8 percent.

Uber patent could detect how drunk you are when ordering a ride
Uber has filed a patent for a system which may be capable of telling drivers if potential passengers are too drunk. By knowing this information, a driver may be warned of their passenger's state - even before they pick them up.


Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4% in 2020 before dropping to 2.9% in the longer run. Should the Fed's expectations prove accurate, its rate policy would then be meant to slow the economy.

U.S. companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 per cent this year.

Beginning in 2008 in the midst of the financial crisis, the Fed kept its key rate unchanged at a record low near zero for seven years.

The Fed anticipates that inflation will overshoot its 2% target this year; in March, officials saw that happening only in 2020.

The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat. Prices did not spike in response to the enormous monetary stimulus, nor has the job market cooled since 2015 when the Fed began tightening policy. But if it miscalculates and overdoes the credit tightening, it can trigger a recession.

The economic expansion has survived for nine years and is now the second-longest in history. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on USA imports, which some studies show could cost the US close to 200,000 jobs.

The Fed's meeting this week is to be followed by policy meetings of two other major central banks - the European Central Bank on Thursday and the Bank of Japan on Friday.

Like this: