Chances Rise for 4th Fed Rate Hike in 2018

On Wednesday, the U.S. central bank again raised its benchmark overnight lending rate by another 25 basis points- the fifth rate hike since it ended its ultra-low interest rate policy in December 2016, and setting current rates to a range of 1.50 percent to 1.75 percent.

In the forecasts, US central bankers projected a median federal funds rate of 2.9 percent by the end of 2019, implying three rate increases next year, compared with two 2019 moves seen in the last round of forecasts in December.

The committee, in its release, said the "stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation".

Its median estimate for economic growth in 2018 also rose to 2.7% from 2.5% in December, while its 2019 estimate increased from 2.1% to 2.4%. The Fed expects inflation, which has run below its 2 percent target for six years, to stay at 1.9 percent this year and then rise to 2 percent in 2019.

The Fed anticipates hiking rates three more times in 2018, part of an ongoing move away from the extraordinary measures it took to stimulate the economy during and after the Great Recession. Additionally, the labor force participation rate moved slightly higher last month, which the head of the central bank noted is particularly positive considering an aging labor force is exerting downward pressure on the metric.

More so given recent reports that Trump would announce an increase in tariffs on Chinese imports this week and that China is already considering slapping higher tariffs on United States agricultural exports.

The committee is now forecasting GDP growth of 2.7% for this year, up from 2.5% and GDP growth of 2.4% in 2019, up from 2.1%.

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Homeowners with a fixed rate mortgage are not affected by rate hikes, but anyone with an adjustable-rate mortgage will find themselves shelling out hundreds more by the end of the year. Despite the stronger growth, lower unemployment rate and higher interest rate forecast, the inflation projection was the same.

In February, 313,000 jobs were added to the economy - the biggest increase in 1 1/2 years - and the unemployment rate held steady at 4.1 percent. Next year will likely see another hike, and 2020 will see at least one more. The U.S. Fed does not appear to be keep to get too far in front of the expected rise in economic growth but is happy to ensure its outlook is realized before draining the punchbowl, stated TD Economics.

The midpoint of the Fed's target range will now reach 3.4 per cent by 2020, higher than the 3.1 per cent predicted previously and above the USA central bank's 2.9 per cent estimate of the neutral rate that neither restrains growth nor pushes it forward.

YDSTIE: And the members of the Fed's policymaking committee boosted their forecasts for growth in 2018, raising it to 2.7 percent - up from their December estimate.

The Fed had kept the near-zero rate unchanged for seven years, before starting to tighten monetary policy in December 2015. Markets have been rattled in recent weeks by Trump's tariff plans and embrace of a potential trade war.

YDSTIE: For now, Powell said, he does not see any sign inflation is accelerating.

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