Published: Sat, April 07, 2018
Markets | By Josh Butler

Federal Reserve Hikes Interest Rates, Sees 2 More Hikes Coming In 2018

Federal Reserve Hikes Interest Rates, Sees 2 More Hikes Coming In 2018

While the Fed continues to signal a total of three rate hikes for this year, it added rate increases in 2019 and 2020. Companies that seek expansion or carry a lot of debt could suffer with additional hikes by the central bank.

The move opens up the range of interest rates paid by major central Banks: ECB 0%; Bank of England 0.5%; Bank of Japan -0.1%; Bank of Canada 1.25%; Reserve Bank of Australia 1.5%. "Job gains have been strong in recent months, and the unemployment rate has stayed low", it said in a post-meeting statement. In addition, the already historically low unemployment rate is seen falling even further, ending next year at a stunning 3.6 percent, according to the quarterly Summary of Economic Projections.

USA indexes lifted following the announcement, with the Dow Jones rising as much as one per cent.

In terms of the economy's outlook, Mr. Bostic said he believes changes in government taxation and spending policies will create "a positive, but relatively modest, boost to GDP growth".

There's growing concern among economists that the GOP tax cuts and the additional boost in federal government spending could cause the USA economy to overheat, requiring the Fed to hike rates even more than three times this year.

Brad McMillan, chief investment officer at Commonwealth Financial Network, agreed that the Fed's statement was "relatively hawkish" and noted that latest dot plot has six Fed officials expecting four hikes this year, double the previous number.

How does the Fed increase interest rates?

All eight of them voted for Wednesday's proposed raising of interest rates, in turn making the fiscal policy proposal law.

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"I think they will end up tightening four times this year, but they don't have to signal that yet", Jim O'Sullivan, chief US economist at High Frequency Economics, told The Washington Post.

The Fed indicated it will make three rate hikes this year.

"If the economy evolves roughly as I suspect, I will likely support further increases over the course of the year", Mr. Bostic said in the text of a speech to be presented before an event in Knoxville, Tenn. But it could also be a sign the growth potential for the US economy is finally improving.

The head of the U.S. central bank says members of its rate-setting committee have reported "concerns" among business leaders over the impact of President Trump's protectionist agenda.

Despite Wednesday's move USA interest rates are still far lower than the historic norm of about 5 percent. "Two of the most popular products we recommend in a rising interest rate environment are longer term loans and tax-oriented leases", he said.

The target range for the federal funds rate was increased by a quarter percentage point to 1.5 percent to 1.75 percent, the highest since the 2008 collapse of Lehman Brothers Holdings Inc. froze credit markets worldwide.

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