Published: Wed, June 13, 2018
Money | By Ralph Mccoy

Fed Raises Rates and Signals Faster Pace in Coming Years

Fed Raises Rates and Signals Faster Pace in Coming Years

The median average of the central bank's updated forecasts - also referred to as the "dot plots" - called for interest rates to end the year around at 2.4%, up from March's projection of 2.1%; The forecasts suggest the Fed will raise interest rates two more times this year.

The Fed now foresees four rate hikes this year, up from the three it had previously forecast.

Negative for gold though is that the central bank also forecasts tame inflation pressures throughout year.

It would be the seventh rate hike since late 2015, when the Fed first started the process of lifting interest rates from nearly zero.

While the course of interest-rate hikes remains gradual, the slightly more aggressive pace shows officials see more urgency to tighten policy, as unemployment already fell in May to the level they had forecast for year-end.

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The biggest change the Fed made Wednesday was to signal that it intends to do two more rate hikes this year, instead of just one. "Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly".

Jerome Powell, Chairman of the Federal Reserve System, will be delivering his remarks at a press conference following the 2-day meeting of the Board of Governors. "Economic activity has been rising at a solid rate". The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%. The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target. US payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years. The Fed is looking for interest rates to rise to 3.4% by 2020, unchanged from the previous forecast. The Federal Reserve releases minutes from the March meeting of its policymakers on Wednesday, April 11.

On inflation, policy makers forecast a slight overshoot of their target starting in 2018 at 2.1 percent, and running through 2019 and 2020, compared with a 2020 overshoot in March's projections.

Core inflation projections, which strip out volatile food and energy prices, is expected to tick slightly higher to 2.0% this year, up from March's projection of 1.9%.

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