The US Federal Reserve raised the benchmark lending rate on Wednesday (June 13), the second increase of the year, and signaled two more hikes were coming in 2018 and four in 2019, a possible sign of concern about accelerating inflation.
Fed Chair Jerome Powell was asked about his view on trade during the press conference following the FOMC statement but he choose to sidestep by mentioning that the Fed does not seek to play a role in trade policy.
The Fed expects the economy to expand 2.8% this year, slightly higher than its previous forecast. "The trajectory of U.S. inflation or the broader United States economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments. The Fed seems to think price pressures will remain contained: They forecast a small overshoot on inflation, but they don't see it climbing above 2.1 percent over the next three years, according to their median estimates. "The Fed is prepared to be quicker about pushing rates higher".
As employers increasingly struggle to find workers - the jobless rate in May matched an 18-year low of 3.8 percent - wages could pick up from their middling pace of recent years. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. Earlier this year, the Fed's projections saw just three rate hikes.
The 3-month SIBOR has hovered at 1.41 per cent since May.
The broad-based S&P 500 shed 11.22 points (0.40 per cent) to 2,775.63, while the tech-rich Nasdaq Composite Index dipped 8.09 points (0.11 per cent) to 7,695.70, retreating from Tuesday's record.
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He quickly cautioned, however, that "we will all know soon whether or not a real deal. can happen". Reactions to the summit and to Trump's post-summit statements have been predictably mixed.
Fed Governor Lael Brainard, among the most dovish policymakers least anxious to tighten, said on May 31 "the sizable fiscal stimulus that is in train is likely to provide a tailwind to growth in the second half of the year and beyond".
Tighter monetary policy ought not to have a significant impact on the U.S. economy in the short term, but higher intermediate and long-term interest rates (a outcome of rising short-term interest rates) could dampen economic growth over time.
US central bankers again emphasized on Wednesday that the goal is "symmetric", and they said in minutes of the May meeting that "a temporary period of inflation modestly above 2 per cent" would help anchor long-run inflation expectations around the target.
Treasury yields rose following the rate announcement.
A gradual rise in inflation is coinciding with newfound economic strength.
But it's widely expected that - if not at this meeting, then next month - the European Central Bank will set out a timetable for when it ends its quantitative easing program, which may be as early as the end of this year.
Consumer loans growth in April was 5.1% YoY, sustaining the strong momentum we saw since in November.