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Fed Boosts Rates by Quarter Point but Signals Slower Pace of Hikes in 2019

Published 12/19/2018, 01:55 PM
Updated 12/19/2018, 03:15 PM

Investing.com - The Federal Reserve raised interest rates by a quarter point on Wednesday, but pivoted toward a slower rate-hike cycle as the economy is expected to cool.

The Federal Open Market Committee raised the fed funds rate 25 basis points to a range of 2.25% to 2.5%.

The decision, while expected, was unwelcome news to the stock market. Equities rallied sharply leading up to the decision, with the Dow up around 300 points, But right after the market, the blue chip index and the broader market had given up all gains. As Federal Reserve Chairman Jerome Powell's press conference wore on, the dovish feeling flew out the window and selling snowballed, with the Dow down as much as 500 points.

"The Committee judges that some 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," the Fed said in a statement.

Members of the rate-setting committee reduced their 2019 median forecast for interest rates to 2.9% from a previous estimate of 3.1%, hinting at two rates hikes in 2019. That's below the three rate hikes previously indicated in the Fed's September projections.

The interest-rate outlook for both 2020 and 2021 was lowered to 3.1% from 3.4%, which guides to one hike that year.

The longer run interest rate was also cut to 2.8% from 3.0%.

For decades the Federal Reserve has operated under a dual mandate seeking to achieve maximum employment, while ensuring inflation remains steady. But inflation and economic growth are expected to slow in the coming year, giving the Fed reason to rein in tightening.

The economy is expected to grow by 2.3% in 2019, down from 2.5% previously, and by 2.0% in 2020, the Fed's Summary of Economic Projections showed.

The pace of inflation, meanwhile, is forecast to cool to a rate of 2.0%, down from 2.1% previously. While core-PCE inflation for both 2019 and 2020 was also revised lower to 2.0 from 2.1%.

The most recent reading of the core PCE index, the Fed's preferred measure of inflation, came in at 1.8%, a notch below the central bank's 2% target.

The unemployment rate, which fell to a 49-year low in December, is expected to come in at 3.5% in 2019, unchanged from a prior forecast.

The rate hike comes as some had expected the Fed to pause in the wake of criticism from President Donald Trump, but Fed chief Powell downplayed any notion that the president could influence the central bank's decision on monetary policy.

"Political considerations play no role on our discussions on monetary policy," Powell said.

Trump earlier this week said the Fed would be making “yet another mistake” by raising rates and urged the central bank to "feel the market" rather than "go by the numbers."

Latest comments

Good decision
70% priced in = .075% unexpected rate hike.
The Federal Reserve will rise interest rate until the economy collapse. Will they find the way to help the economy with good interest rate and prevent the asset bubble by different rate? for example, if people buy the 2nd house need to pay higher rate, and the 3rd will be more.
If the economy collapse fed can do nothing to change the situation, it will take years to get rid if crise and if will be really paintfull. Recession has already started (looking price oil drop, metal price drop). The only hopes for us economy to lay off powel and replace him with someone that is printing money and give air to the economy
Maintaining stable interest rates can maintain stable economic growth. At the same time, if inflation rises, the Fed can reduce its balance sheet every month instead of raising interest rates. Otherwise, it is too late to lower interest rates when the economy collapses. Now, people are afraid of raising interest rates and stop making plans, and then the economy slows down. The goals and tasks of the Fed are wrong.
Great news for owners of 401k's and IRA's as the see their retirement income bleed away. I guess Bill Maher's hope for an economy in the tank so people won't vote for the "Tariff Guy" in 2020.
Yes led hikes seems
Will this rebound tomorrow perhaps?
No it will go down more and more because fec doesn’t want to help evonomy to be strong
We have headache from these 2 persons Trump with his trade war and powel with his interest rate raising
The "Tariff Guy" thinks he know's all, he is going to end up like Bush One out of a job. Merry Christmas from the Fed
Neither Trump and Powell is there to entertaint you guys and make you money in stock market. They do whats necessary to the goodwill of the country
well now what.
Why the he heck did Trump appoint this guy?
But who put trump there in the first place
I call 2400 for S&P, thanks feds.
Fed doing all they can to take Trump down by tanking economy.
not really. Trump bubble has exploded
Seeing as he appointed the chair of the fed, this comment makes zero sense.
Nice. You watch, this will cause a recession.
yup, the higher deficits caused by the Trump tax cuts to the wealthy and corporations along with his tariffs will definitely cause the recession.
how will this affect usdcad?
ok
The news are bad, simply because they are admitting officially that the economy is cooling down. Now, after the conundrum with the rates start looking the big picture.
Why is the market crashing on this news? This rate hike was already priced in, or so everyone said.
I agree, the market reacted completely idiotic to this news even though it was expected
this is bed news
Stocks will go down regardless the FED because the mother of all stock market bubble is bursting.
it means that you need to get ready to lose your shirt
 what does it mean? will the make the stocks go down or up? sorry new here
They should just crash the economy once and for all.
alot people are not ready for the crash.
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