The Federal Reserve’s decision to raise its interest rate environment at the March 2017 policy meeting was allowed by a strengthening United States job market and accelerating USA inflation. But if the Fed ends up raising rates three or four times this year and follows up with three additional hikes in 2018, its benchmark rate would be left at a level that might start to dampen economic activity. Investors had widely expected the rate increase. We’ve seen a huge rally since President Trump was elected, thereby pricing stocks very high.
When the Fed raises short-term rates, banks pay customers higher interest on their deposits. The Board voted unanimously to “raise the interest rate paid on required and excess reserve balances to 0.75 percent”, a decision that took effect December 15, 2016.
Tony Bedikian, Managing Director of Global Markets at Citizens Bank, said further interst rate increases will depend on what the economy does over the next few months.
It’s the counterintuitive move of “buy the rumour, sell the news” that had investors out of the USA dollar following the Fed Wednesday. The strong report gives the Fed enough justification to raise interest rates the first time this year. Interest rate rises are almost always the catalyst for an economy going into recession.
The U.S. Federal Reserve today announced it is raising its federal funds rate by a quarter percentage point. Each policymaker offers his or her own anonymous forecast.
Job protections, inflation: According to the Fed, the median projection for growth of inflation-adjusted gross domestic product is 2.1% in the present year and will edge down to 1.9% in 2019, slightly above its estimated longer-run rate. Rate hikes sounded like a great idea on the campaign, but too many of them could come back to haunt him.
With the change, the target range for the federal funds rate will go from 0.75 percent to 1 percent. You could also shop for a lower fixed-rate or low-interest card, where you could save up to 4 percentage points on the annual percentage rate. As with most forms of consumer credit, the best rates go to the most credit-worthy customers. But some economists are wondering whether the new chart may estimate a higher number of rate increases, reflecting a brighter outlook for the economy.
One of the primary questions in the markets coming into Wednesday’s presser with Yellen was what the Fed was planning to do after yesterday. Greg McBride, chief financial analyst Bankrate.com told the portal that this will increase borrowing costs for loans with floating interest rates such as loan taken against home equity, adjustable mortgages and variable rate student loan debt.
Higher interest rates have sometimes been a problem for presidents though. Inflation, which had stayed undesirably low for years, is edging near the 2 percent annual rate that the Fed views as optimal.
Some of Trump’s proposals, like tax cuts, regulatory reform, and infrastructure spending, could speed up economic growth, whereas protectionist trade policies and stricter immigration laws could slow the economy. It continues to forecast two more increases this year as inflation approaches two per cent.
Always keep in mind that whatever the Fed does, it shouldn’t change your long-term financial strategy.