The Fed just raised interest rates again. Now things get interesting
Mar 16 2017 by Cristina Jennings
Federal Reserve policymakers expect to hike rates a total of three times this year, including the increase announced Wednesday.
In its quarterly economic projections, the central bankers still predict the federal funds rate will rise to 1.4 percent by the end of the year, which would imply another two increases, unchanged from the previous forecast.
- FOMC raises benchmark interest rate to range of 0.75-1.00%, as was expected by markets (Fed funds futures were pricing in a 100% chance pre-meeting).
Onlookers widely expected the central bank to raise rates Wednesday.
So what message does this rate hike send to consumers?
When looking at the more broad spectrum unemployment rate called the "U-6", rate, unemployment is actually somewhere around 9.3 percent. According to Freddie Mac, the average 30-year fixed-rate mortgage was 4.21% last week.
Economists were anticipating a rate hike for weeks, encouraged by robust job growth in February, mounting wage pressure and since inflation is nearing the Fed's goal of 2 percent.
Problem is, an economy that's doing too well means there is too much money and too little to buy. The Fed wants to keep it that way.
And while an interest rate hike from the Federal Reserve tends to be the kind of news event that a lot of readers and consumers feel doesn't pertain to them, higher interest rates can have impacts across the household sector. A rate increase would make the economy noticeably worse off than if the Fed refrained from increasing its fed funds target. The gas pedal, if you will, is already pushed to the floor. However, several officials including Chair Janet Yellen made comments that gradually convinced markets that the Fed was ready.
"The strength of the labor market is for real", Jack Ablin, chief investment officer at BMO Private Bank in Chicago, told the Los Angeles Times.
Announced earlier, USA consumer prices increased 2.7 per cent year on year in February, the highest inflation rate since March of 2012, boosted by a rise in gasoline prices.
Fueling the Fed's need to continue pushing rates higher is a slew of improving reports on the health of the USA economy.
US retail sales recorded their smallest gain in six months in February, setting USA gross domestic product on track to grow at a 0.8 per cent annualized pace in the first quarter according to the Atlanta Fed's latest forecast. They're raising rates back toward historically normal levels - they exceeded 5 percent for most of the past half-century - at a historically appropriate pace.