Markets

US Federal Reserve raises interest rates

US Federal Reserve raises interest rates

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT).

(Kitco News) - Gold prices are holding steady just below the psychological barrier of $1,300 an ounce after the Federal Reserve suggested that it will hike interest rates more aggressively this year and the next as the USA economy continues to grow.

When the Fed last released the dots back in March this year, the median member forecast was for the funds rate to increase three times in 2018. The move reflects the economy's resilience, the job market's strength and inflation that's finally nearing the Fed's target level.

Fed says raises interest on excess reserves rate to 1.95 pct from 1.75 pct.

The Fed was widely expected to raise interest rates Wednesday amid strong economic data.

The Fed move came after a two-day meeting where its members discussed the robust state of the U.S. economy and the potential impact of a trade war amid rising tension between the USA and its largest trading partners. The statement the Fed issued today after its latest policy meeting ended suggested that he does. The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%.

The decision to raise rates comes as the U.S. unemployment rate hovers at 3.8% - the lowest rate in almost two decades - and inflation, which lagged the Fed's 2% target for years, shows signs of starting to pick up.

We are closing into the FOMC's June policy decision and as the clocks tick closer to the decision timing, following are the expectations as forecasted by the economists and researchers of 8 major banks along with some thoughts on the future course of Fed's action. Unemployment, now at an 18-year low of 3.8 percent, would drop to 3.6 percent by year's end and to 3.5 percent in 2019 and 2020 - levels not seen in 49 years.

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The bank's preferred indicator of inflation, consumer spending figures, showed annual inflation rose 2% in April or 1.8% if energy and food were excluded.

They expect the core inflation rate to rise to roughly 2% this year. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late past year.

The unemployment rate is 3.8%, the lowest since 2000 and tied for the lowest reading since 1969. It then raised rates once in 2015, once in 2016, three times in 2017 and now twice this year.

Growth is also expected to stay close to nearly 3 percent of GDP through the year, and Fed officials are eager to prevent the economy from overheating. When the Fed tightens credit, it aims to do so without derailing the economy.

And a majority of policy makers said they now expect a total of four interest rate increases this year. All those countries have vowed to retaliate against any USA tariffs with their own penalties against US goods.

U.S. interest rates are set to rise further and faster than previously planned as surging economic growth forces officials to do more to try to see off the threat of inflation.

The Fed's meeting this week is to be followed by policy meetings of two other major central banks - the European Central Bank on Thursday and the Bank of Japan on Friday.


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