The US economy continues to strengthen, the Fed indicated, and it no longer needs the historically low interest rates that were put in place in the aftermath of the financial crisis to stimulate growth.
Fed raises rates, Powell talks future plans
This report, released by Federal Reserve, includes the FOMC's projection for inflation and economic growth over the next 2 years and, more importantly, a breakdown of individual FOMC member's interest rate forecasts. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast.
"The main takeaway is that the economy is doing very well", Fed Chairman Jerome Powell said at a news conference.
The Fed's short-term policy rate, a benchmark for a host of other borrowing costs, is now roughly equal to the rate of inflation, a breakthrough of sorts in the central bank's battle in recent years to return monetary policy to a normal footing. In its statement the central bank said that "economic activity has been rising at a solid rate". The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%.
Inflation, which has been mysteriously low during the long economic recovery, has finally passed 2%, the level the Fed considers healthy. And their rate increases are addressing the "perceived threat of inflation", not an immediate inflation problem, he said. The action means consumers and businesses will face higher loan rates over time.
Along with rising interest rate expectations.
Greg McBride, chief financial analyst for the interest rate website Bankrate.com, said that could "squeeze" families if wage growth remains sluggish. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing global trade disputes could slow USA growth.
The policy statement bypassed discussion about the tensions over the Trump administration's trade policies, including a decision two weeks ago to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico.