It also boosted its forecast for US growth to 2.7% this year and 2.4% in 2019.
To little surprise the Federal Reserve raised the federal funds rate to a range of 1.5% to 1.75%. It also boosted its forecast for US growth this year and in 2019, predicting an economic expansion of 2.7% and 2.4%, respectively. “The economic outlook has strengthened in recent months,” it said as part of its statement released on Wednesday at the conclusion of its two-day policy meeting.
The Fed expects it will increase rates three times this year — not the four times that many expect will happen — but it also did not rule out four hikes. JP Morgan Asset Management, for example, says that “If fiscal policy stimulus does indeed result in higher growth rates and faster inflation, the Committee median will shift to a total of 4 rate hikes in 2018 as soon as the June FOMC meeting.” And Morgan Stanley Research Chief US Economist Ellen Zentner is looking for two additional hikes in 2019, “where we think the tightening cycle ends at 2.625%,” it said in its summary of the Fed’s announcement.
The meeting and subsequent statements by the new chair Jerome Powell, were closely watched by the market to see if the Fed thought the US economy might be in danger of overheating, thus opening the door to a rapid rise in inflation. There was a hint of that — the Fed expects inflation to rise to a 2% increase next year, which is unchanged from its last meeting. But this time they forecast inflation rising to a 2.1% increase in 2020.
The Fed also predicted that the 4.1% jobless rate will drop to 3.8% by the end of the year.
By: Erika Morphy (Globe St)
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