Fed Hikes Rates as Expected

The Federal Reserve raised the target range for the federal funds rate by 25bps to 2 percent to 2.25 percent during its September 2018 meeting, in line with market expectations. Policymakers expect one more rate hike this year, 3 increases in 2019 and 1 in 2020, in line with previous expectations.

GDP growth forecasts for 2018 were raised to 3.1 percent from 2.8 percent in the June projection and for 2019 to 2.5 percent from 2.4 percent. 2020 forecast was left steady at 2 percent. The unemployment rate is seen higher at 3.7 percent in 2018 (3.6 percent in the June projection) and at 3.5 percent in both 2019 and 2020 (the same as in June). PCE inflation forecasts were left steady at 2.1 percent for 2018, eased to 2 percent from 2.1 percent in 2019 and unchanged at 2.1 percent in 2020.

FOMC statement:

Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Fed Hikes Rates as Expected

Fed | Joana Taborda | joana.taborda@tradingeconomics.com
9/26/2018 6:23:13 PM