Markets

Fed raises interest rate and foresees 2 more hikes this year

Fed raises interest rate and foresees 2 more hikes this year

"If interest rates are rising from a low level, there's more optimism about the economy, and that generally is a more positive thing", he said.

The move, the central bank's first major decision under new Chairman Jerome Powell, was widely expected as the USA economy continues to strengthen and stock markets remain near record highs.

The greenback's fall suggested disappointment in the foreign exchange market that the USA central bank suggested it was on pace for just three rate hikes in 2018 and not four.

Fed officials also raised their forecast for 2017 GDP growth from 2.5 percent to 2.7 percent, while increasing the 2018 expectation from 2.1 percent to 2.4 percent. The average national savings account interest rate was 0.6 percent before the Fed began raising rates in 2015, according to FDIC data. The Fed asserted that part of the deviation from 2 percent reflects unusual price declines that occurred almost a year ago.

February 2018 brought a national unemployment rate of 4.1 percent, a 17-year floor, making the streak continue for its fifth consecutive month.

In his first press conference as Fed chief, Powell pointed to the factors that have boosted the economic outlook in recent months, including "more stimulative" fiscal policy, in the wake of the massive tax cuts Congress passed in December.

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The announcement underscores the Fed's gathering confidence in the economy as well as its focus on the potential for inflation, which has remained persistently muted throughout the expansion. Market watchers are concerned that this could lead to tit-for-tat responses from other nations, and hurt global economic growth.

President Donald Trump recently announced steep tariffs on aluminum and steel and is expected to take more tough action against Chinese goods this week, but Powell said officials did not specify whether rising trade frictions could impact growth or inflation. Hong Kong's Hang Seng index was down over 1 percent in late trade.

The Fed on Wednesday raised its benchmark fed funds rate (http://www.marketwatch.com/story/fed-lifts-rates-in-powells-first-meeting-says-outlook-has-strengthened-2018-03-21) as expected and signaled it's still on track to raise rates a total of three times in 2018.

Likewise, Tim Foster, fixed income portfolio manager, Fidelity International said the focus was also on the dots plot and Fed's updated economic projections. It projects federal funds rates of 2.1 percent in 2018, 2.9 percent in 2019 and 3.4 percent in 2020.

"(Gold's) initial reaction to the Fed was positive, but then reading through to 2019 and 2020 you see potentially a faster pace of (rate) tightening, so its like giving with one hand and taking away with the other", ICBC Standard Bank analyst Tom Kendall said. It is, after all, no secret that private corporations attracted by ultra-low interest rates had heavily loaded up on debt over the last decade. He also noted that there's growing concerns about a trade war hurting the USA economy. The 2019 estimate rose to 2.4 percent from 2.1 percent in December. The two moves mean that many consumers and businesses will face higher loan rates over time.


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