The U.S. Federal Reserve raised interest rates on Wednesday and forecast at least two more hikes for 2018, highlighting its growing confidence that tax cuts and government spending will boost the economy and inflation and spur more aggressive future tightening.
Following the interest rate-hike announcement, most Wall Street biggies, including Wells Fargo WFC, The PNC Financial Services Group, Inc. "People are buying more shoes, but higher rates do pose a challenge for footwear companies, which need loans to expand and grow because it will now cost them more to borrow".
In the forecasts, U.S. central bankers projected a median federal funds rate of 2.9% by the end of 2019, implying three rate increases next year, compared with two 2019 moves seen in the last round of forecasts in December. This week the Fed raised its benchmark short-term interest rate by 25 basis points to 1.50-1.75%, the highest in a decade.
So far, the Fed has been moving gradually to tighten monetary policy to prevent the world's largest economy from overheating.
What's more, seven of the 15 participants on the Fed's policymaking arm favored four rate hikes in 2018, compared to just four members at the end of 2017.
They now expect the jobless rate to decline to 3.6 percent from the current 4.1 percent, and stay there through the end of 2020.
The Fed lifted the target federal funds rate from 1.5 percent to 1.75 percent, sending the United States dollar into a downward spiral and slightly lifting the price of silver.More news: Amazon tops Alphabet in market cap, now No. 2 US-listed firm
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In his first press conference as new chairman, Jerome Powell said the Fed is trying to stake out the "middle ground: Raising rates enough to keep inflation at bay without causing harm to the economy".
Another factor that might have disappointed the markets could be the inflation projection.
Unusually low inflation, combined with slow economic growth, helps explain why the Fed has steadily reduced its "longer run" fed funds target since 2012. Trump appointed Powell to the position.
Spot gold dipped on Thursday as the US dollar pared losses on safe-haven buying from investors fearing a trade war between the United States and China, but gold futures rose, with one trader citing arbitrage trades.
Chairman Jerome Powell, picked by Trump to lead the USA central bank, said policy makers had not altered their economic outlook following the president's announcement of trade tariffs on steel and aluminum and threats of measures against Chinese goods. Slightly contradictory, U.S. unemployment, which is now at 4.1 percent, is expected to ease to 3.8 percent before the end of 2018, down from the 3.9 percent forecast in December. He also noted that there's growing concerns about a trade war hurting the USA economy.
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The Fed has indicated that it expects two further (0.25%) interest rate hikes this year, with faster rises in the pipeline in 2019. "But, this now being the sixth interest rate hike, the cumulative effect since December 2015 is that a $30,000 home equity line now carries a minimum payment that is $37 a month higher", McBride said. The two moves mean that many consumers and businesses will face higher loan rates over time.