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Fed Reserve Increases Interest Rate

Fed Reserve Increases Interest Rate

Fed reserve increases interest rate.

Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the Committee’s 2 percent longer-run objective.

Taking into consideration the realized and expected labor market conditions as well as the inflation, the Committee made the decision to raise the interest rate from 3/4 to 1 percent. The monetary policy position is still accommodative, including further strengthening in labor market conditions and a sustained return to 2 percent inflation. The Committee expects that economic activity will expand moderately, labor market conditions will keep on strengthening and inflation will stabilize. The Committee will monitor closely inflation indicators, global economic and financial developments.

The interest rate increase is another step of the Federal Reserve toward removing the stimulative policies that still continue from the aftermath of the financial crisis. 1% interest rate is the highest rate since 2008. This move has been widely anticipated by financial markets and more hikes are expected ahead.
With the rate increase, investors are seeking for clues about how severe the central bank will be. As mentioned earlier, the market expects that the Federal Reserve will hike two more times this year. After the Wednesday`s decision there is a probability of the upcoming hikes in June and December.

Nevertheless, the expectations of the officials in regards to the economic growth has changed a little. The GDP forecast for 2018 is 2.1%, still the growth estimates is at 1.8%. Inflation expectations are remaining in check too. A slight jump from 1.8% to 1.9% is expected, and in the longer run the rate will tend to 2%.

During the Wednesday session with reporters, the Federal reserve chairwoman Janet Yellen stressed that the fed will remain data-dependant and not interested in aggressive tightening. The interest rate raise comes among such hopes that Trump`s aggressive fiscal policy will allow the Federal Reserve to pass its economic stimulus role to Congress and the White House.
According the surveys that have been run, economy is to grow more than in the post crisis level. Businesses, consumers and professional investors all have stated that they trust better times are ahead.

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