Federal Reserve hikes key interest rate for second time in 2018

Federal Reserve hikes key interest rate for second time in 2018

Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected. That reflects the fact that the U.S. recovery after the crisis has been stronger, and inflation is getting closer to the Fed's target. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

"The economy is doing very well", Fed Chairman Jerome Powell said in a press conference after the rate-setting Federal Open Market Committee released its unanimous policy statement after the end of a two-day meeting. Risks to the economic outlook appear roughly balanced.

The FOMC's economic growth forecasts were little changed, with 2018 GDP seen rising 2.8 percent rather than 2.7 percent but unchanged at 2.4 percent in 2019 and two percent in 2020. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments.

This will raise borrowing costs for credit cards, auto financing, mortgages, and other loans, but help savers earn more interest on their deposits. This could dent some of the enthusiasm in the buoyant property market.

A effect of the policies pursued by the Fed, the ECB and the Bank of Japan since 2008 has been a significant increase in global debt - at government, corporate and household levels - as ultra-low rates and torrents of liquidity ignited a global borrowing binge.

The 3-month SIBOR has hovered at 1.41 per cent since May.

Unemployment is now at an 18-year low of 3.8% and is expected to fall further to 3.6% this year.

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The broad-based S&P 500 shed 11.22 points (0.40 per cent) to 2,775.63, while the tech-rich Nasdaq Composite Index dipped 8.09 points (0.11 per cent) to 7,695.70, retreating from Tuesday's record.

Tin Min Ying, an investment analyst at Phillip Securities Research Pte Ltd, said last week that SIBOR and SOR will continue their upward trend.

The use of the term "symmetric" and "medium term" is a clear indication the Fed is not in a hurry to get inflation to two percent and will be comfortable if prices rise above that level for a short time.

In addition to the rate hike, the Federal Reserve's dot plot, which signals the future path of interest rates, suggested that the central bank was planning 4 rate hikes this year, instead of the 3 rate hikes forecast earlier. NIM expansion will be the main share price catalyst for the next few quarters.

But wages are rising along with stronger economic growth. In the longer run, it maintained the forecast for 1.8% growth. "The continuing rise in SIBOR and SOR will keep NIMs elevated", the report said.

Tighter monetary policy ought not to have a significant impact on the United States economy in the short term, but higher intermediate and long-term interest rates (a effect of rising short-term interest rates) could dampen economic growth over time. Eastern time news conference.

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