Skip to main content

Fed Raises Rates on Improved Economic Outlook

CNNMoney by Patrick Gillespie 

America, interest rates are going up.

The Federal Reserve raised short-term interest rates by a quarter point on Wednesday. It's the Fed's third rate hike since December. And it's a sign that the central bank believes the U.S. economy is on solid ground. 

"It reflects the progress the economy has made," Fed chair Janet Yellen said at a press conference.

In a sign of confidence, the Fed upgraded its forecast for U.S. economic growth and unemployment this year.

Rising interest rates eventually affect millions of Americans from home buyers to credit card holders to savers. However, interest rates for mortgages are not expected to rise immediately.

The Fed's key interest rate will now hover in a range between 1% and 1.25%. Overall, rates are still very low compared to prior decades. The Fed also said it's planning to start gradually selling off the assets that it had bought during and after the financial crisis to boost the economy.

Wall Street investors shouldn't be surprised by the rate hike: They estimated there was a 96% chance that the Fed would raise rates after its two-day meeting.

The central bank's decision comes after lots of signs that the U.S. economy is in good shape. The unemployment rate fell to 4.3% in May, its lowest level since 2001. The economy has added jobs for 80 consecutive months.

Fed leaders see the unemployment rate remaining at about 4.3% this year and falling to 4.2% in 2018.
Fed officials also cut their forecast for inflation, one of the last indicators to really pick up momentum in recent years. They lowered their projection to 1.6% for this year from an estimate of 1.9% in March.

"Today's rate increase by the Fed reflects the continued strength and progress of the U.S. economy," said Tony Bedikian, head of global markets at Citizens Bank.

Overall, the U.S. has grown at a slow and steady pace since 2009, making it one of the longest periods of growth in American history.

The Fed put interest rates at 0% in December 2008 to boost the collapsed housing market and bruised economy. But with the U.S. economy much improved now, it needs less of the Fed's monetary medicine.

This has given the Fed confidence to begin selling off some of the $4.5 trillion of holdings it amassed during and after the recession. The Fed plans to initially start selling mortgage-backed securities and Treasuries totaling $10 billion a month. The Fed said this process is expected to begin later this year as long as the economy "evolves broadly as anticipated."

The majority of Fed officials see at least one more rate hike this year. They meet again four more times this year -- in July, September, October and December.

One question mark facing the Fed this year is the future of Yellen. Her term ends next February, and it's unclear if President Trump will renominate her for a second term. In the past, Trump both praised and criticized Yellen, who said on Wednesday she hasn't spoken to Trump about her future at the Fed.
Yellen would not say whether or not she wanted to stay at the Fed for another term.

"I really don't have anything for you at this point," Yellen said

Comments

Post a Comment

Popular posts from this blog

Womack Weekly Commentary: September 18, 2017

­Womack Weekly Commentary September 18, 2017 The Markets “In theory, there is no difference between theory and practice, in practice there is.” Yogi Berra was talking about baseball, but the concept also applies to diversification, according to the GMO White Paper, The S&P 500: Just Say No . From the title, you might think the authors – Matt Kadnar and James Montier – don’t like U.S. stocks. They do: “Being a U.S. equity investor over the past several years has felt glorious. The S&P 500 has trounced the competition provided by other major developed and emerging equity markets. Over the last 7 years, the S&P is up 173 percent (15 percent annualized in nominal terms) versus MSCI EAFE (in USD terms), which is up 71 percent (8 percent annualized), and poor MSCI Emerging, which is up only 30 percent (4 percent annualized). Every dollar invested in the S&P has compounded into $2.72 versus MSCI EAFE’s $1.70 and MSCI Emerging’s $1.30.” The au...
9 comments
Read more

Another Tornado Record's in Sight for U.S. as Thunderstorms Boom

Bloomberg by Brian K Sullivan Another wave of tornado-spawning thunderstorms is set to rip across the Great Plains and South this week, putting the U.S. within reach of a record year for life-threatening twisters. Severe storms will drench a swath of the country from Texas to Mississippi over the next five days, according to the U.S. Storm Prediction Center. Through Thursday, 369 tornadoes have been reported across the country, the most in five years and more than double the normal number of sightings. An active jet stream and unusually balmy weather are to blame for the burst of deadly tornado activity, the storm prediction center said. Strong winds have dragged storms into the warm, humid air that’s blanketed the eastern half of the nation, creating conditions ripe for a weather phenomenon that leads to at least $400 million in damage a year in the U.S. “We have a severe threat starting today and continuing for each of the next five days through at lea...
Post a Comment
Read more

Pandemic-Driven Demand Is Providing Fuel for Investors

  For four weeks, the U.S. stock market has sparked and sputtered like a campfire in light rain. Today, pandemic-driven demand is providing fuel for the investors. The need for certain types of products and services has accelerated and innovation is creating new opportunities. Consider: ·      Technology . Today, digital technologies support nearly all group interactions, which has accelerated innovation. Traditional video communications platforms are in high demand, and multi-person virtual platforms are emerging. Robotics innovations are racing ahead, too. Robotic dogs enforce social distancing in Singaporean parks, reported Accenture. Other types of robots sanitize streets and facilitate contact-less delivery around the globe. ·      Consumer products and services . COVID-19 increased demand for staples, cleaning, and personal hygiene products. The virus may have inspired deeper and longer-lasting changes in consumer behavio...
1 comment
Read more