Federal Reserve interest rates since 2001
- Author: Salvatore Jensen Jun 15, 2017,
Jun 15, 2017, 2:39
With gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further, the Federal Reserve says.
ANALYST'S TAKE: "Despite stubbornly low inflation, the Fed is widely anticipated to lift its interest rate tomorrow", Ric Spooner of CMC Markets said in a report. The yield on the 10-year Treasury note was 2.12 percent, the same as shortly before the statement came out. In the past, when the Fed raised rates, it tended to cause interest rates on mortgages to go up too.
The Standard & Poor's 500 index, the benchmark that professional investors follow, likewise wasn't changed much either.
The Fed still eyes one more rate hike this year, highlighting a rosier job market.
"Today's rate increase by the Fed reflects the continued strength and progress of the USA economy", said Tony Bedikian, head of global markets at Citizens Bank. And hiring in the United States remains solid if slowing, with employment at a 16-year-low of 4.3 percent - even below the level that the Fed associates with full employment. But the highest-yielding CDs have risen from 1.35 percent to 1.5 percent.
Fed officials lowered their median projection for where they see the unemployment rate in the fourth quarter of this year, to 4.3% from the 4.5% they predicted in March. Annual retail sales growth accelerated to 1.5% in April, higher than the market's forecast of 0.6% from 0.9% in March.
The latest Fed rate hike, announced in a statement after a policy meeting, comes as the USA economy is growing only sluggishly.
The rate decision of the Federal Reserve is shown on a television on the floor of the New York Stock Exchange, Wednesday, June 14, 2017.
In the statement following the decision, the Fed stated that the near-term risks to the economy appear roughly balanced, but expects inflation to remain below target at 1.6% in the near term and is monitoring developments closely. Only Neel Kashkari, president of the Minneapolis Fed bank, opposed the increase. Indeed, the risk is that the Fed could hint at an earlier balance sheet exit than the market is now expecting.
The Fed also gave a first clear outline on its plan to reduce its US$4.2 trillion (NZ$5.8 trillion) portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession. The Fed still foresees prices, as measured by a gauge tied to consumer spending, rising 2 percent in 2018 and 2019, achieving its target. A two-day policy meeting by the Federal Open Market Committee ended on Wednesday. "It's really theory trumping the actual economic data". This would bring the fed funds rate to a range between 1.00-1.25%.
In December 2015, a week before the first increase, the average 30-year fixed mortgage rate was 4.06 percent, according to Bankrate.com. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments.
Germany's 10-year yield and most other euro zone equivalents were flat on the day, as were U.S. Treasury yields, which have not strayed far from seven-month lows hit in early June.