Published: Sat, March 24, 2018
Markets | By Terence Owen

Devil is in the dots: Widely-predicted Fed hike unsettles investors

Devil is in the dots: Widely-predicted Fed hike unsettles investors

The Federal Reserve raised its key interest rate Wednesday in a vote of confidence in the USA economy's durability while signaling that it plans to continue a gradual approach to rate hikes for 2018 under its new chairman, Jerome Powell. The financial conditions tightened since the end of January as investors sought signals that the central bank could raise interest rates faster.

In the future, there is a higher probability for the Fed to raise the benchmark rate to 2.25 per cent as targeted, as markets had started to accept the rate increases, Jitpol said, adding that he expected the baht and other Asian currencies would not be affected too much. Citing improvement in employment and economic operations as reasons, this is the third interest hike imposed by the US Federal Reserve in the current fiscal year.

In its latest forecast, the Fed predicted the USA would grow 2.7% this year and 2.4% next year - well above the 1.8% pace that the central bank views as consistent with stable inflation.

Higher interest rates could also make debt servicing more hard for a large number of leveraged firms across the world. The average credit-card rate is already a full percentage point higher than it was a year ago and is likely to jump more this year as the Fed increases rates further. "We're trying to take that middle ground", he said in a news conference after his first policy meeting as head of the central bank.

Mr Powell said the Fed is "alert" to the possibility of inflation and expects inflation to rise in coming months, but is not expecting a sharp increase. As things stand today, this would mean that interest rates in the United States will not go to the level seen before the financial crisis in the foreseeable future. "I would imagine the bar is higher for him in the shorter term because he is not a trained economist", unlike Janet Yellen and other predecessors. The estimates for inflation excluding food and energy, which officials see as a better way to gauge underlying price trends, rose to 2.1% in 2019 and 2020 from 2% seen in December.

The newly altered 2.9% estimate is still extremely low by historical standards (and roughly the same level as the 10-year Treasury ).

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However, the range of estimates for the federal funds rate reveal officials are split nearly exactly down the middle, with eight expecting no more than three rate hikes this year and seven projecting four moves or more.

The midpoint of the Fed's target range will now reach 3.4 percent by 2020, higher than the 3.1 percent announced previously.

Officials' growing optimism tracks with the expectations of many Wall Street analysts.

US gold futures for April delivery rose 0.7 percent to $1,331 per ounce. He also noted that there's growing concerns about a trade war hurting the US economy. He said there's no reason to believe that's going to change soon. "It could change up".

Wednesday's action sets the Federal Funds rate - paid by banks for overnight loans - at the highest target since the depths of the 2008 financial crisis, when the central bank slashed the benchmark from 2% to a near-zero range, an all-time low. Even some members who have fretted more about growth than inflation appear to be shifting their calculus. Two more quarter-point rate increases are expected for the rest of this year, easing worries that one additional hike might be in the cards.

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