Fed Raises Interest Rates Again

For borrowers, interest on credit cards, home-equity loans and adjustable-rate mortgages will rise immediately.

“The simple message is – the economy is doing well”.

It is the first hike since US President Donald Trump came into power with pledges to boost the economy, and the third since rates were lifted from near zero in late 2015 for the first time in nine years.

The critical change, says PNC economist Gus Faucher, is that the Fed’s previous statement had promised “only gradual increases“.

We have prepared an FOMC dashboard that segregates members in three distinct groups, Hawks, Doves, and unknowns based on their remarks and commentaries made in public forums, focusing on the March interest rate decision. “And, most importantly, no durable and significant acceleration of wage growth to healthy levels has happened yet”. Keeping rates too low limits the Fed’s monetary policy options when responding to economic turmoil.

Onlookers widely expected the central bank to raise rates Wednesday. Now, it’s on a roll.

Federal Reserve Chair Janet Yellen speaks after the Fed’s board of governors announced a 0.25 percent interest in the key interest rate, the second increase in the rate since December.

At the current pace, rates would not return to a neutral level until the end of 2019, Reuters noted.

Yellen did not specify how much of an inflation overshoot the Fed would tolerate, though past policymaker comments suggest that 2.25 percent or 2.5 percent inflation would be acceptable to the Central Bank. But many skeptics view the post-election moves in sentiment and markets as evidence of a “sugar high” and warned that the Fed might undermine Trump’s attempts to spur faster economic growth.

Federal Reserve Chair Janet Yellen speaks during a news conference in Washington, D.C., on Wednesday. Meanwhile, the average rate on a 1-year CD is 0.33%, only slightly up from 0.28% a year ago. The unemployment rate has fallen to 4.7 percent. The Fed left unchanged its inflation estimate at 1.9% this year and 2% for 2018, but marginally revised up its forecast for core inflation to 1.9% this year. “Two rate hikes within the space of just over three months and some marginal toughening up of the statement on forward guidance underscore the contrast with the glacial and hesitant approach to unwinding stimulus seen in the past few years”, it said in a statement.

Even though February’s advance retail sales figure showed a slowdown on the month, dipping from 0.6% to 0.1%, this was not seen to have any detrimental impact on the likelihood of the Fed hiking rates tonight.