Fed Hikes Rates for Third Time This Year

30 September, 2018, 05:12 | Author: Manuel Hopkins
  • December Rate Hike Probabilities

In the three months since the Fed last raised rates, there have been reports of strong jobs numbers, bullish markets, blockbuster growth in GDP, a rock-bottom unemployment rate and sky-high consumer confidence.

United States gross domestic product grew at an annual pace of more than 4% in the second quarter of this year, and the unemployment rate continues to hover below 4% - near historic lows.

During a press conference after the decision, Powell said the removal of the sentence about policy accommodation doesn't signal a change in the Fed's path for gradual tightening guided by incoming economic data.

That's not to say there aren't dark spots.

"Where it gets interesting, and there is a lot of uncertainty, is what happens after that".

"We don't consider political factors", Powell said when asked about pressure from Trump to keep rates low.

The Fed's statement describes USA economic conditions as "strong" a number of times. "And so they're nearly going to pay any price to have a vehicle".

Even after the expected Wednesday increase, the rates would still be low by historical standards. Not since the late 1960s has unemployment fallen that low.

At a news conference earlier this year, Powell called the issue "a bit of a puzzle".

The president's latest comments expanded on interviews, Twitter comments and a private speech over the past three months when Trump has said he was not happy with rate hikes, breaking with a more than two-decade-old norm of presidents avoiding comments on monetary policy out of respect for the Fed's independence.

"The percentage rate hasn't gone up as much as the credit card rate, but given that mortgages are generally much larger than credit card balances, in some ways it can have more of an impact on somebody who's just trying to entering the housing market now", Barrington said.

With bated breath, UN awaits another first for Trump
But Macron's harshest criticism had to do with the Paris climate agreement, which Trump withdrew the USA from in 2017. In his address past year to the UN, Trump insulted Kim as a "rocket man" bent on nuclear destruction.

It is a "treadmill to nowhere", McBride said.

"Unfortunately, they just raised interest rates", Mr Trump said at a press conference in NY, where he was attending the annual United Nations General Assembly. The nine-member committee voted unanimously for the hike. There are also troubles beyond USA borders.

Kim Hyo-sun tells us more.

A potential wildcard in the Fed's projections is USA trade policy.

"We are doing great as a country", Trump said Wednesday at a press conference in NY.

In a highly unusual move for a president, Trump has publicly complained that the Fed's rate increases could blunt his efforts to boost growth through tax cuts and deregulation. "It washes up on our shores, as well".

From the current rate of 2% to 2.25%, the FOMC median expects there'll be another four 25 basis point rate increases over that period.

More recent Fed actions, however, have taken on a more negative tone for markets with stocks drifting lower ahead of the Fed's announcement and seeing a fairly pronounced sell-off into the bell after the last three Fed rate hikes. Now that money is flowing, and now that inflation is ticking up, most analysts say it's about time to ease up off that gas pedal. A tight employment market, in this scenario, will accelerate wages and inflation and prod the Fed to keep tightening credit to ensure that the economy doesn't overheat. The Fed wants to avoid that whiplash.

Its history, however - and that of most central banks, to be fair - would suggest that it has struggled to achieve soft landings in the past.

The Fed's assessment of the natural rate of interest is crucial to the upcoming conduct of monetary policy. "Hindsight is 20/20, but they have to make policy today".



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