Coverage: Fed raises interest rates again
The Federal Reserve Board raised its benchmark interest rate for the third consecutive quarter on Wednesday, demonstrating confidence in the American economy.
Binyamin Appelbaum of the New York Times had the news:
The Fed, as expected, raised its benchmark rate to a range between 1 percent and 1.25 percent, citing the continued strength of job growth and dismissing, for now, the renewed weakness of inflation.
“The labor market has continued to strengthen,” the Fed said in an upbeat statement published after a two-day meeting of its policy-making committee. The Fed added that economic growth “has been rising moderately so far this year,” making no mention of the reported weakness last winter.
With rates on the rise, the Fed has said that it will soon begin to dismantle the last part of its post-crisis economic stimulus campaign by reducing its portfolio of more than $4 trillion in Treasuries and mortgage-backed securities. On Wednesday it described its plans, though not the exact timing.
The Fed said it would initially reduce its holdings by $10 billion a month for three months, divided 60-40 between Treasuries and mortgage bonds. It will then increase the pace by $10 billion every three months, maintaining the same division, until the reduction reaches $50 billion a month.
Ana Swanson of The Washington Post reported that consumers will feel the affect of higher spending costs:
The increase was the second rate hike this year and the fourth since the Federal Reserve began raising rates in December 2015. As such, consumers will begin to feel the impact of higher costs for lending — especially those with large mortgages or those who carry credit-card debt, said Greg McBride, chief financial analyst at Bankrate.
“For a lot of people, they don’t even notice,” he said. “But for those where budgets are tight and their debt burdens have been growing the last few years, this is where the signs of strain begin to emerge.”
The Fed described the rate hike as evidence of a stronger economy. It said that job gains had “moderated” but were still “solid, on average, since the beginning of the year.” As it has in previous months, it said its interest rate remains “accommodative,” meaning that it is still low enough to help fuel economic activity.
The Fed is mandated by Congress to consider two goals: Maintaining a healthy labor market where Americans who want jobs are able to find them, and restraining potentially destabilizing increases in prices.
Akin Oyedele of Business Insider reported that the Fed forecast one more rate hike this year:
The Fed raised rates for the second time since President Donald Trump took office, and it maintained its forecast for one more hike this year.
That’s even though inflation continues to trail its 2% target. The Department of Labor’s monthly consumer price index released earlier Wednesday was weaker than expected, raising speculation that this would be the last rate hike of the year.
“They actually increased their overall growth expectations but inflation is going to lag, and so I think that’s going to be the key,” Gaffney told Business Insider. “If we continue to not see any inflation, we could start to perhaps see it impacting their rate decisions going forward.”
The Fed was rosier about the other part of its mandate — the labor market — amid a 4.3% unemployment rate. The Fed noted that “job gains have moderated” but remained solid.
The lack of strong wage inflation, however, is another sign for the doves, including Neel Kashkari, the Minneapolis Fed president who voted against the decision, that the Fed should not be eager to raise rates.