FED goes ahead with rates hike – one more planned for later this year
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FED goes ahead with rates hike – one more planned for later this year

Federal Reserve (FED) officials decided to go ahead with a widely expected interest rate hike yesterday, and forecasted another one later in the year. Despite concerns over weak inflation, the central bank is committed to tightening its monetary policy – something that it didn’t get round to starting as soon as it would have liked.

If it started slow, the FED has been aggressively pursuing this policy over the last six months, as the economy has looked strong enough to handle it. Yesterday marks the third such raise in six months, and it isn’t planned to be the last of the year. The FED is now laying out plans to shrink its $4.5 trillion balance sheet by the end of 2017.

At the conclusion of their two-day Washington meeting, the Federal Open Market Committee made the following comment in a statement:

“Near-term risks to the economic outlook appear roughly balanced, but the committee s monitoring inflation developments closely. The committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated. Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the committee’s 2% objective over the medium term.”

The FED is walking a line here between continued monetary tightening in response to a robust job market, and acknowledging the surprisingly low inflation we’ve seen in 2017 so far. It also forecasts three quarter-point rate increases in 2018.

The FED will next meet in six weeks on 25 – 26 June.

Disclosure

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.


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