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GREAT AGAIN: Fed RAISES 2018 Economic Outlook, HIKES Interest Rates

14 June, 2018, 15:10 | Author: Samuel Sharp
  • How likely US Federal Reserve rate hike could impact India

(Kitco News) - Gold prices are holding steady just below the psychological barrier of $1,300 an ounce after the Federal Reserve suggested that it will hike interest rates more aggressively this year and the next as the USA economy continues to grow.

However, higher rates would help savers earn more interest on their deposits. This is partly why a rate hike is expected; the Fed usually only hikes when there are pressers so the chair can talk about the decision.

However, the FOMC statement stressed that rising interest rates were unlikely to derail economic growth - which it now characterizes as "strong" rather than "moderate" - and again made clear the Fed had some tolerance for inflation above its two percent target.

Since the Fed began holding quarterly news conferences in 2011, it has announced major policy moves only at the quarterly meetings, which have all been followed by a news conference by leader of the Fed. They removed previous language that the rate "is likely to remain, for some time, below levels that are expected to prevail in the longer run". Unemployment, now at an 18-year low of 3.8 percent, would drop to 3.6 percent by year's end and to 3.5 percent in 2019 and 2020 - levels not seen in 49 years. Economic activity is projected to expand 2.4% in 2019, unchanged from the previous forecast; finally, the economy is expected to grow 2.0% in 2020, unchanged from the previous forecast. USA payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years. The statement by Fed officials explaining the vote also hinted at a slightly faster pace for future rate increases.

U.S. interest rates are set to rise further and faster than previously planned as surging economic growth forces officials to do more to try to see off the threat of inflation. That compares with March's forecasts for 3.8 per cent this year and 3.6 per cent in the following two years.

They see another three rate increases next year, a pace unchanged from their previous forecast.

A gradual rise in inflation is coinciding with newfound economic strength.

The dollar index, which measures the greenback against a basket of currencies, fell 0.24 percent, with the euro up 0.41 percent to $1.1791.

"Rising interest rates will start taking a toll on borrowers that are already stretched to the limit with tight household budgets", said Greg McBride, the chief financial analyst at Bankrate.com.

After keeping interest rates low for years to boost growth, the central bank is now moving rates back to what economists say is a neutral position-one that neither boosts growth nor depresses it.

The unemployment rate is 3.8%, the lowest since 2000 and tied for the lowest reading since 1969. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001.

The decision reflected an economy that's getting even stronger.

A global trade war would risk cutting into USA economic growth by depressing American export sales and raising inflation by making consumers and businesses pay more for imports.



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