Fri, Sep 28, 2018 page10

• Fed raises rates a quarter of a point

  MEETING EXPECTATIONS: The removal of the word ‘accommodative’ with reference to the central bank’s monetary policy did not mean a change in outlook, its chairman said

  • Reuters, WASHINGTON
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  The US Federal Reserve raised interest rates on Wednesday and left intact its plans to steadily tighten monetary policy, as it forecast that the US economy would enjoy at least three more years of growth.

  In a statement that marked the end of the era of “accommodative” monetary policy, Fed policymakers lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2 percent to 2.25 percent.

  The US central bank still foresees another rate hike in December, three more next year and one increase in 2020.

  That would put the benchmark overnight lending rate at 3.4 percent, roughly half a percentage point above the Fed’s estimated “neutral” rate of interest, at which rates neither stimulate nor restrict the economy.

  That tight policy stance is projected to stay level through 2021, the timeframe of the Fed’s latest economic projections.

  “The thing that folks were watching for, which they went ahead and did, was remove the word ‘accommodative’ in regard to their monetary policy,” State Street Global Advisors chief investment strategist Michael Arone said. “It does seem to potentially indicate they believe monetary policy is becoming less accommodative and getting more towards that neutral rate.”

  US Fed Chairman Jerome Powell said the removal of the wording, which had been a staple of the central bank’s guidance for financial markets and households for much of the past decade, did not signal a policy outlook change.

  “Instead, it is a sign that policy is proceeding in line with our expectations,” Powell said at a news conference after the release of the statement.

  The Fed sees the economy growing at a faster-than-expected 3.1 percent this year and continuing to expand moderately for at least three more years, amid sustained low unemployment and stable inflation near its 2 percent target.

  “The labor market has continued to strengthen ... economic activity has been rising at a strong rate,” it said in its statement.

  The Fed inserted no substitute language for the dropped “accommodative” wording in its statement. That wording had become less and less accurate since the central bank began increasing rates in late 2015 from a near-zero level, and its removal means the Fed now considers rates near neutral.

  Wednesday’s rate increase again drew criticism from US President Donald Trump, who has complained that the Fed’s actions are countering his efforts to boost the economy.

  “We’re doing great as a country. Unfortunately they just raised interest rates because we are doing so well. I’m not happy about that,” Trump said on the sidelines of the UN General Assembly in New York. “I’d rather pay down debt or do other things, create more jobs. So I’m worried about the fact that they seem to like raising interest rates.”

  Powell declined to say whether Fed policymakers had discussed Trump’s previous criticism of the central bank.

  Last month, Trump expressed his displeasure about rising rates and said the Fed should do more to boost the economy.

  Powell, who was appointed by Trump and took over as Fed chairman earlier this year, said the central bank would remain independent.

  “We don’t consider political factors or things like that,” he said.

  Wednesday’s rate hike was the third this year and the seventh in the past eight quarters.

  Ahead of Wednesday’s statement, traders put the chance of a rate increase at 95 percent, CME Group Inc said.

  The Fed’s latest projections show the economy continuing at a steady pace through next year, with GDP growth seen at 2.5 percent next year before slowing to 2 percent in 2020 and to 1.8 percent in 2021, as the impact of recent tax cuts and government spending fade.

  Inflation was forecast to hover at about 2 percent over the next three years, while the unemployment rate is expected to fall from 3.9 percent to 3.5 percent next year and remain there through 2020 before rising slightly in 2021.
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