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Two More Interest Rate Hikes Likely This Year As Fed Raises Benchmark Interest Rates

Two More Interest Rate Hikes Likely This Year As Fed Raises Benchmark Interest Rates
The U.S. Federal Reserve has signaled that it would most probably hike interest rates twice more this year because of multiple factors which include the "strengthened" economic outlook for the U.S. economy in recent months. The Fed gave these signals while announcing another hike on Wednesday of 25 basis points in the benchmark interest rate.
"In view of realized and expected labor market conditions and inflation," the Fed had taken the decision to increase the target range for the federal funds rate between 1.5 to 1.75 per cent, said the U.S. central bank in a statement after the end of a two-day meeting of the executives of the bank.
Based on factors such as fiscal stimulus and enhanced overseas demands, the growth rate for the U.S. economy would be quite fast in the current year as well as the next year, is the overriding expectations of the Fed officials.
The Fed's forecasts on the projected growth rate of the U.S. economy released on Wednesday pegged the growth rate for 2018 at 2.7 per cent while it is expected to be around 2.4 per cent in 2019. These expected rates of growth are higher in comparison to the earlier projections that were made by the Fed of 2.5 per cent and 2.1 per cent for 2018 and 2019 respectively.
Next year, the core inflation is expected to be around 2.1 per cent according to Fed officials which would be somewhat higher compared to the target of the Fed and is more than the previous projection by the central bank which was at 2 per cent.
In 2018, the overall rate of unemployment kin the economy is anticipated to get reduced to 3.8 per cent and in 2019, the rate is expected to be around 3.6 per cent. Both these rates are lower compared to the earlier projection of 3.9 per cent by the Fed.
According to the median forecast for interest rates, despite the enhanced economic outlook, three rate hikes in 2018 is being contemplated by Fed policymakers.
At the same time, the central bank also expects to hike rates three times during 2019 fiscal and twice during 2020 fiscal which are more than what had been estimated earlier in December.
There was no acknowledgement of the perception of the Fed getting into a mode of faster rate hikes by Fed Chairman Jerome Powell while trying to downplay the relevance of forecasts for interest rate hikes.
"I think like any set of forecasts, those forecasts will change over time. They will change depending on the way the outlook for the economy changes," Powell said at a press conference after the meeting.
"If the economy is stronger or weaker, the path could be a little less gradual or a little more gradual," he said.

Christopher J. Mitchell

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