Yesterday Fed Chair Janet Yellen announced the U.S. Federal Reserve decided to raise the interest rate with the federal funds for the 2nd time since December and cited the U.S. economy’s continued progress toward their employment and price stability objectives.
The U.S. Central Bank decided yesterday at the end of their 2 day monetary policy March meeting to raise the target rate with the U.S. federal funds by 25 basis points to .75 percent and 1 percent.
The interest rate hike from the Fed was largely anticipated by the market with most economists forecasting the rate hike amid an improving job market and inflation level that is inching closer to the Fed’s 2 percent inflation target.
During the past 3 months, job gains in the U.S. have averaged 209,000 per month and the U.S. unemployment rate has dropped to 4.7 percent.
“Looking ahead, we expect that job conditions will strengthen somewhat further” Yellen admitted during yesterday’s press conference.
Since December 2015, the U.S. Federal Reserve has raised interest rates cautiously in a slow and deliberate pace, arriving in 25 basis point increments that aren’t intended to jolt or shock the market.
Yellen admitted yesterday that the Fed didn’t want fall behind the curve by waiting too long to raise interest rates and then be compelled to overcompensate by raising rates rapidly to catch up.
“Today’s decision also reflects our view that waiting too long to scale back some accommodation could potentially require us to raise rates rapidly sometime down the road, which, in turn, could risk disrupting financial markets and pushing the economy into recession” Yellen admitted during the press conference.
Yellen said that business investment in the U.S. has improved after facing some softness last year which was an election year with the U.S. presidency.
“Business investment, which was soft for much of last year, has firmed somewhat, and business sentiment
is at favorable levels. Overall, we continue to expect that the economy will expand at a moderate pace
over the next few years” Yellen said.
Yellen pointed out that U.S. core inflation has been little changed in recent months and currently stands at about 1.75 percent but is expected to stabilize around the Fed’s 2 percent target over the next 2 years.
“We expect core inflation to move up and overall inflation to stabilize around 2 percent over the next
couple of years, in line with our longer-run objective” Yellen said.
Fed committee members project 2.1 percent U.S. GDP in both 2017 and 2018 before it edges down to 1.9
percent in 2019.
There are 2 more interest rate hikes projected in 2017 based on theFed’s median projections with the U.S. federal funds which is projected to be at 1.4 percent in 2017 and 2.1 percent in 2018.
“We also expect the neutral level of the federal funds rate to rise somewhat over time, meaning that additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion. Even so, the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is still likely to
remain below levels that prevailed in previous decades” Yellen said.
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Here is my latest YouTube video where I added some commentary about the Fed’s March rate hike, President Trump, and the proposed legislation in the American Healthcare Act.