Fed Raises Benchmark Rate from 2.25% to 2.5%

Federal Reserve Board Chairman Jerome Powell speaks during a Rural Housing Assistance Council Awards Reception on Dec. 6 in Washington D.C

The Fed raised key overnight lending rate rates by 0.25 percent point as expected to a range of 2.25 percent to 2.50 percent.

Among other threats: the trade dispute between the US and China, and rising USA interest rates, which act as a brake on economic growth by making it more expensive for businesses and individuals to borrow money.

In doing so the Fed seems to have ignored weeks of market volatility and calls by President Donald Trump to stop raising interest rates by the USA central bank.

"We think this move was appropriate for what is a very healthy economy", he said.

The Fed's November statement said rate increases were expected, while now it "judges that some further gradual" hikes are in store, which Williams said "is not a commitment or promise in any way". "We at the Fed are absolutely committed to that mission and nothing will deter us from doing what we think is the right thing to do".

As for future policy, we expect the Fed to increase the Fed funds rate only once in 2019, to 2.50-2.75%, most likely in the second quarter. The latest Reuters poll showed economists expect two rate hikes, with the probability of a US recession in the next two years jumping to 40 percent.

The stock market turned sharply lower Wednesday after Powell spoke at his press conference that followed the Fed's rate hike. The 5-year high yield CDX index's spread rose 16 basis points (or 0.16 percentage point), and the 5-year investment grade CDX's spread rose four basis points.

"Faced with political pressure from the president to stop raising rates and panic on the part of investors who were seeing their massive capital gains disappear, the Fed could have punted". "The U.S. economy has momentum.This is not a group that is overly concerned about financial market volatility". That would imply a March and a June rate hike, although the timing wasn't spelled out.

The central bank has raised rates with steady regularity as the United States economy has strengthened. It marked the central bank's ninth hike since late 2015. But a mix of factors - a global slowdown, a U.S. Fed statement was issued to a loss at the close of almost 352 points, or 1.49 percent. Speaking at a news conference after the Fed...

"Trump's allies in the House can pound their fists on the table all they want, but it's not going to get a wall", Senate Minority Leader Chuck Schumer (D-NY) said earlier Thursday.

And with risk-free alternatives yielding more than 2%, it should come as no surprise if investors choose not to buy this dip when Thursday comes. The report said Facebook had arrangements with more than 150 companies including Microsoft, Amazon, Spotify and Netflix that some companies read, write and delete users' private messages or see the names of a user's friends or their news feeds without their consent. This will allow him to explain any abrupt policy changes.

Treasury Secretary Steven Mnuchin said Thursday that financial markets are overreacting too the Fed's rate hike this week.

"What appeared to be even more concerning to equity investors is that Powell is not only ignoring Trump's calls to pause the tightening cycle, but he is also not listening to them".

The Dow Jones industrial average hit the lowest point of the year on Wednesday and is on the verge of notching its worst annual return in a decade.

That outcome is hard to reconcile with what remains a rather solid economic outlook for the US. It is seen rising to 3.6 percent in 2020 and to 3.8 percent in 2021, slightly higher than previously forecast.

The Fed raised rates again despite pressure from the U.S. president - who has tweeted repeatedly about his opposition to a rise - as it lifted its benchmark rate to a range of 2.25% to 2.5%. Its statement described the economy as strong.

The Fed gave a nod to concerns about global economic growth by saying it will monitor global and financial developments and said it will slow down the pace of interest rate increases in 2019.

Despite the Fed's forecasts that USA economic growth will slow next year and the unemployment rate begin to tick up the following year, economists aren't buying that a rate cut will materialize in 2020.

Sure, other steps helped along the way, including the Republican tax cut and spending boost from the Trump administration.

The decision to drag out the interminable tedious divorce from the European Union (EU) creates enough economic uncertainty in the "real" world to delay what the bank would like to do, which is to probably raise rates a couple of times.

At the same time, Powell tried to make clear the Fed would not blindly pursue its effort to normalize borrowing costs at the risk of inadvertently triggering a recession. From China to Europe, major economies are weakening.

"Regardless, markets were looking for more signals from Chair Powell that he hears their concerns".

There are also fears that the brisk pace of US growth this year reflected something of a sugar high, with the economy artificially pumped up by tax cuts and a boost in government spending.

Japanese stocks also declined after the Bank of Japan left ultralow rates unchanged, with the threat of trade protectionism and slowing global growth casting a pall over the export-driven economy.

Related:

Comments

Latest news

Players get away with murder! - Keane blames United stars for Mourinho sacking
Players are quick to hide behind social media, their cars and their girlfriends, the whole lot". Solskjaer essentially gets a free hit with six months in charge and lowered expectations.

Mugabe faces assault arrest if she travels to South Africa
South African police said the warrant for the wife of former Zimbabwean president Robert Mugabe had been granted on 13 December. Robert Mugabe was still president of Zimbabwe at the time and Grace was allowed to leave South Africa without being prosecuted.

US Stocks Dive Again, Worst December Since Great Depression Projected
Monday's selling came as investors positioned themselves ahead of the Federal Reserve's two-day meeting, which begins on Tuesday. At this rate, the Dow Jones and S&P 500 are on track for their worst December since the Great Depression in 1931.

North Korea Issues Blunt Statement On Denuclearization
North Korea has repeatedly refused United States calls for it to unilaterally denuclearize, branding Washington's demands a "delusion".

Other news