Fed Lifts Interest Rates, Expects 3.6% Unemployment

Federal Reserve raises interest rates

Fed raises interest rates as unemployment nears record lows | TheHill

Borrowers are likely to see higher bills next month on credit cards and mortgages, especially those with adjustable rates.

The central bank also signaled two more hikes are coming in 2018 and four in 2019, a possible sign of concern about accelerating inflation in the US.

In raising its benchmark overnight lending rate a quarter of a percentage point to a range of between 1.75 per cent and 2 percent, the Fed dropped its pledge to keep rates low enough to stimulate the economy "for some time" and signalled it would tolerate above-target inflation at least through 2020.

Peter Ashton, managing director of Eiger FX, said: "Whilst the currency markets had priced in a rate hike as a near certainty, the news that the Fed has boosted its outlook to four rate hikes this year has seen sterling come under renewed pressure".

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The OECD and the Bank for International Settlements (BIS) have published papers in recent years discussing "zombie" companies - established businesses whose earnings don't cover their interest costs but which have been kept alive by post-crisis policies. This is because Singapore interest rates are closely correlated with those in the US.

However, higher rates would help savers earn more interest on their deposits.

The move was heavily anticipated by the market, but the strong pace of the U.S. economy could mean more rate hikes. This would improve the Fed's communication, Powell said. And if the Fed were to increase rates excessively without having a proper measure of the slack in the labor market, the result would be a curtailment of aggregate demand, pushing the economy into recession.

While investors and economists spend the next few days deciphering new Fed Chairman Jerome Powell's decision to hold a press conference after every meeting and what the projected path of future hikes means for the economy, the lastest hike will hit your wallet nearly immediately.

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Higher rates in India can derail economic growth, which still is not on strong footing and can be negative for the equity market. Inflation by the Fed's preferred gauge would hit its target of 2 per cent this year and edge up to 2.1 per cent over the next two years. The committee also cut their forecast for unemployment.

"Economic activity has been rising at a solid rate", the FOMC said in its statement.

Second, the lower unemployment over the past couple of months has been accompanied by a drop in the labor force participation rate for 25-54 year olds - the prime working-age group unaffected by the aging of the United States population. "Household spending has picked up while business fixed investment has continued to grow strongly". On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 per cent. Indicators of longer-term inflation expectations are little changed, on balance. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to 2 per cent inflation.

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