The Latest: Fed sees faster growth, 3 rate hikes in 2018
WASHINGTON (AP) — The Latest on the Federal Reserve’s monetary policy meeting (all times local):
Federal Reserve policymakers expect U.S. economic growth will accelerate next year and the unemployment rate will fall to 3.9 percent from its current level of 4.1 percent. But they still plan to raise short-term interest rates three times next year and at least twice in 2019, the same as previous estimates.
Fed officials sharply increased their growth projection for 2018, to 2.5 percent from 2.1 percent in September. Some analysts thought the faster growth would cause the Fed to pencil in four rates next year, rather than three.
Ultra-low unemployment can cause employers to pay more in order to attract and keep workers, which in turn can lead to higher prices. Yet the Fed sees inflation remaining 1.9 percent next year and just 2 percent in 2019 and 2020.
As expected, the Federal Reserve has boosted a key short-term interest rate at the last U.S. central bank meeting that Janet Yellen is expected to lead.
Fed officials ended their two-day meeting by hiking the federal funds rate — what banks charge each other for short-term loans — to a range of 1.25 to 1.5 percent.
The Fed chose to raise the rate despite inflation running consistently below its 2 percent target. Rate hikes are usually intended to limit inflation, but Fed officials appear to assume that continued rate increases won’t stop inflation from climbing above its current 1.6 percent level.
Seven officials voted for the increase. Two opposed, likely due to the lack of inflation: Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari.
Federal Reserve Chair Janet Yellen is set to give her last scheduled news conference as the head of the U.S. central bank.
The Fed is expected to hike a key short-term interest rate, which would be the fifth rate increase of Yellen’s tenure. The federal funds rate — what banks charge each other for loans — is currently in the range of 1.00 to 1.25 percent.
Fed officials have signaled that they will end their two-day meeting by raising the rate 0.25 percentage points, an indication that they see the economy as appearing to be healthy. The unemployment rate has slipped to a 17-year low of 4.1 percent, although inflation still lags the Fed’s target.
Yellen will then address reporters after the 2 p.m. announcement on rates.
World stock markets are subdued ahead of an expected interest rate increase from the Federal Reserve.
The Fed is widely expected to raise on Wednesday its key interest rate for the third time this year as the U.S. economy strengthens.
Investors appear confident that the economy can withstand a gradual increase in rates. However, they will be keeping a close eye on Fed Chair Janet Yellen’s comments during a news conference for signals on how aggressive the Fed might be in raising rates next year. Though Yellen’s term as chair ends in February, she will largely be expressing the views within the wider Fed rate-setting committee.
In morning trading in Europe, Germany’s DAX index and Britain’s FTSE 100 were both down 0.1 percent, while Japan’s Nikkei 225 shed 0.5 percent. Wall Street was expected to open flat, with futures for the Dow and S&P 500 indexes trading flat.
The dollar was down 0.1 percent against the yen, at 113.38 yen, and flat against the euro at $ 1.1744.