Federal Reserve statement and interest rate decision, June 2018

Irving Hamilton
June 13, 2018

The Federal Reserve hiked America's benchmark interest rate a quarter point on Wednesday to 1.75 to 2 percent, a move that will likely cause a slight increase in mortgage, credit card, auto and small business loan rates. US companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 percent this year.

Fed officials also said they expect to raise rates twice more this year, faster than previously forecast.

It would be the seventh rate hike since late 2015, when the Fed first started the process of lifting interest rates from nearly zero.

Powell faces a tricky balancing act as the Fed attempts to bring interest rates toward historical averages. Ahead of the announcement, markets were pricing in a almost 100% chance of a rate hike.

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Stay tuned to FOX Business for coverage of Powell's remarks starting at 2:30 p.m. ET.

The rate increase was in line with investors' expectations and showed policymakers' confidence in the economy's growth prospects, continued low unemployment and steady inflation. It would allow the Fed to be less choreographed and more flexible in cutting or raising rates as economic conditions warrant. The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run. The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target. That compares with March's forecasts for 3.8 percent this year and 3.6 percent in the following two years. US payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years.

Core inflation projections, which strip out volatile food and energy prices, is expected to tick slightly higher to 2.0% this year, up from March's projection of 1.9%. Economic activity is projected to expand 2.4% in 2019, unchanged from the previous forecast; finally, the economy is expected to grow 2.0% in 2020, unchanged from the previous forecast.

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