The Federal Reserve raised interest rates for the third time this year. Investors largely expected an increase in the federal funds rate-the interest that banks charge each other-based off public statements by Fed officials.
The Fed lifted its short-term rate - a benchmark for many consumer and business loans - by a modest quarter-point to a range of 2 percent to 2.25 percent. The Fed seeks to slow the economy when it reaches full employment to prevent a tight job market from raising inflation too high. The central bank also stuck with a previous forecast for three more rate hikes in 2019.
"The labor market has continued to strengthen. economic activity has been rising at a strong rate", it said in its statement. By eliminating that statement, they're suggesting that those goals are now within reach and that rate hikes will likely continue, per the AP.
In its updated outlook, the Fed foresees one final rate hike after 2019 - in 2020 - which would leave its benchmark at 3.4 percent. And Powell said that while it is the job of the U.S. Treasury, not the central bank, to manage the currency, a rising U.S. dollar caused by rising rates would inevitably allow countries to sell more to the U.S. "Unfortunately they just raised interest rates a little bit because we are doing so well". However, the Fed rate hikes will be consequential for the region's energy dependent economies. Did that mean the Fed would shade toward being less aggressive or more? He downplayed the threat during Congressional testimony in July, but President Donald Trump has since imposed tariffs on an additional $200 billion worth of Chinese goods, and threatened to impose duties that would cover half of all imports from the world's second-largest economy.
The Fed, created by Congress in 1913, has for a generation been given a wide berth to set monetary policy without interference from elected officials.
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"It's a concern", Powell said.
Saudi Arabia's central bank said it was raising its reverse repo rate by 25 bps to 2.25 per cent, and its repo rate by the same margin to 2.75 per cent. Bahrain's central bank raised its interest rate on its one-week deposit facility to 2.5 per cent from 2.25 per cent. Kuwait said it is keeping its key discount rate unchanged at 3 per cent. Wall Street has focused on strong economic data and corporate fundamentals instead of tariffs and other trade issues.
The U.S. economy, as measured by the gross domestic product, is expected to grow 3 percent for 2018 as a whole. This puts the Fed funds rate between 2% and 2.25%. The Fed sees the economy's long-run growth at a 1.8 percent annual rate - far below the Trump administration's projections for a sustained rate of 3 percent. After the United States administration said it was slapping tariffs on $250 billion worth of Chinese goods, Beijing retaliated this week said there is little hope of restarting trade talks with Washington. And U.S. consumers in general are relatively safe because their most unsafe asset, housing, was part of a bubble that popped more than a decade ago.
Anticipation of higher interest rates has boosted home mortgage applications.