Federal Reserve Hikes Interest Rate Target, Signals More Hikes Ahead

For the sixth time since the financial crisis, the Federal Reserve has increased interest rates another quarter of a point.

Fed policymakers on Wednesday announced an increase in federal funds rate target to a range of 1.50 percent to 1.75 percent and signaled that it expects to hike rates at least two more times this year.  The move indicates the central bank sees ongoing strength in the economy.

In its official statement, the FOMC said the labor market has continued to strengthen and economic activity has been rising at a “moderate rate.” Despite the stronger economy and brisk growth of jobs, the Fed does not appear to be concerned about inflation.

“The economic outlook has strengthened in recent months,” the FOMC said.

The announcement came at the end of the two-day meeting of the Federal Open Market Committee, the Fed’s monetary policy-setting panel. It was the first FOMC meeting chaired by Jerome Powell.  Powell is due to hold a press conference at 2:30 PM.

The Fed has signaled that it expects to raise interest rates three times this year, just as it did in 2017.

The Fed’s official economic projections reflect a growing confidence in the economy. The so-called “central tendency” of the forecast of Fed officials is for the economy to grow by 2.6 to 3.0 percent this year, up from the 2.2 to 2.6 percent at the end of last year. The forecasts for 2019 were also moved up, with the central tendency going to a range of 2.2 to 2.6 percent GDP growth from 1.9 to 2.3 percent.

Fed policymakers expect unemployment to drop below 4 percent this year and to fall even more next year. Their inflation forecast’s central tendency sees prices rising between 1.8 percent and 2.0 percent this year.

The Fed’s hike was widely expected. In recent weeks, at least seven Fed officials have indicated in speeches and other comments that the fiscal stimulus from tax cuts and government spending could lift their forecasts for the rate of economic growth or interest rates. Last month, Powell said he has grown more confident in his economic outlook.