Fed Raises Rates While Keeping Three-Hike Outlook for 2018

Story by Bloomberg
Written by Christopher Condon

Federal Reserve officials followed through on an expected interest-rate increase and raised their forecast for economic growth in 2018, even as they stuck with a projection for three hikes in the coming year.

“Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington. Inflation will remain below the Fed’s 2 percent goal in the near term but “stabilize” around the target in the medium term, the central bank said.

In a key change to the statement, the Fed omitted prior language saying it expected the labor market would strengthen further. Instead, Wednesday’s missive said monetary policy would help the labor market “remain strong.” That suggests Fed officials expect improvement in the job market to slow.

The yield on 10-year U.S. Treasury notes was little changed after the Fed announcement, as was the Bloomberg Dollar Spot Index.

The 7-2 vote for the rate move, the Fed’s third this year, raises the benchmark lending rate by a quarter percentage point to a target range of 1.25 percent to 1.5 percent. In another move that could tighten monetary conditions, the Fed confirmed that it would step up the monthly pace of shrinking its balance sheet, as scheduled, to $20 billion beginning in January from $10 billion.

Through the policy adjustments and the statement, the Fed continued to seek a delicate balance between responding to positive news on growth and unemployment that encouraged gradual tightening, while signaling caution due to persistently weak inflation readings that have befuddled policy makers.

That puzzle continued earlier Wednesday when Labor Department data showed consumer inflation, excluding food and energy, was lower than expected at 1.7 percent in the 12 months through November.

Read more: https://www.bloomberg.com/news/articles/2017-12-13/fed-raises-rates-while-sticking-to-three-hike-outlook-for-2018