US Federal Reserve raises lending rate

World

20 Dec 2018

US Federal Reserve raises lending rate; signals slower pace ahead

The US central bank raised the benchmark borrowing rate yesterday, but gave the clearest sign to date that it will go slow on additional increases as it watches the economy.

The Federal Reserve's move seems certain to anger US President Donald Trump, who has attacked the central bank repeatedly on Twitter for even considering a fourth hike this year in the key interest rate.

Feel the market, don't just go by meaningless numbers: Trump

Statement

We'll continue to monitor global economic, financial developments: Fed

We'll continue to monitor global economic, financial developments: Fed

The Fed delivered on what some economists called a "dovish hike," raising the target range by 0.25 point, with 2.5% at the high end, while signaling caution moving forward, especially as it keeps an eye on international developments.

While economic risks remain "roughly balanced," the Fed statement after the two-day policy meeting said the central bank "will continue to monitor global economic, financial developments."

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Plans

Federal Reserve Chairman Jerome Powell to hold press conference tomorrow

The bank will also assess the implications of developments for the economic outlook, said the statement.

The US economy is facing potential challenges from Trump's trade war, a slowing Chinese economy, and the potential economic, financial turmoil that could come in the wake of Brexit.

Federal Reserve Chairman Jerome Powell will hold a press conference tomorrow to explain the central bank's thinking.

Market situation

Stock market crumbled recently, Wall Street lost 2018 gains

Stock market crumbled recently, Wall Street lost 2018 gains

Increasing signs the US-economy may have peaked has caused stock markets to crumble recently, with Wall Street wiping out all of its 2018 gains.

The policy-setting Federal Open Market Committee also released its quarterly forecast showing officials see economic growth moderating so that they now expect to increase the benchmark interest rate only twice next year rather than three times, as forecast in September.

Forecast

Fed-officials expect two hikes rather than four in coming year

Five Fed officials slashed their forecast, and now expect two or fewer hikes rather than four or more in the coming year.

The Fed's median forecast for GDP growth was cut to 2.3% for 2019 from 2.5%, which in turn brought the inflation outlook once again below the Fed's 2% target, even with unemployment remaining at a 50-year low of 3.5% next year.

Growth is seen slowing further to 2% in 2020

Even with the continued strong job gains, wages have not accelerated, and prices have crept up only gradually, removing pressure on the central bank to put the brakes on the US economy. Growth is seen slowing further to 2% in 2020 and 1.8% in 2021.

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