Fed Reserve Raises Rate For Third Time This Year Despite Trump's Opposition


Global equities ran out of steam and USA bond yields fell after the Federal Reserve raised interest rates as expected, sticking to its script of gradual policy tightening with forecasts of five more rate hikes by 2020.

Though they have said President Donald Trump's trade policies pose a risk to the economy, central bankers are unlikely to be heavily critical, Swonk added.

In August, the president said he was "not thrilled" with Powell, his own appointee, for hiking rates.

"Unfortunately, they just raised interest rates a little because we are doing so well".

Stocks stayed in positive territory most of the day, but tumbled into the red in the final minutes following Powell's news conference, a sudden change in direction that is not unusual on the day of Fed decisions.

In a statement after its latest policy meeting, the Fed dropped phrasing it had long used that characterized its policy as "accommodative" - that is, favoring low rates. The Federal Reserve Chairman, Jerome Powell cautioned that a permanent move towards a "more protectionist world" would be detrimental to the USA and global economies.

Inflation was forecast to hover near 2% over the next three years, while the unemployment rate is expected to fall to 3.5% next year and remain there through 2020 before rising slightly in 2021. Their June dot plot indicated three rate hikes next year and one in 2020, raising questions about what happens afterwards.

"The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions and inflation near the committee's symmetric 2 per cent objective", the statement said, repeating previous language.

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The yield on the 10-year Treasury note is close to its highest level since 2011, but it dipped on Wednesday morning to 3.08 percent from 3.10 percent late Tuesday. The Fed effectively placed its foot on the gas during the Great Recession, driving down rates to boost borrowing and pump more money into the economy.

The effect of rising interest rates will also be felt by the corporate and financial institutions which have turned to capital markets in the past few years to raise funds. The Fed will do it as long as the growth impact is rather muted while the inflationary effects become more apparent in the United States economy.

The Fed rate hike isn't making the Euro weaker.

Most analysts expect the Fed to raise rates again in December, with increases continuing in 2019.

In its updated outlook Wednesday, the Fed foresees one final rate hike after 2019 - in 2020 - which would leave its benchmark at 3.4 per cent. The tariffs Trump has imposed on imported steel and Chinese goods, in particular, complicate the Fed's decision-making.

Putting it all together, we had a widely expected rate hike, the removal of the word "accommodative" and a Fed Chair who has no fear of a spike in inflation. Three months ago, when the Fed last raised rates, the Kuwait central bank also kept its key rate unchanged. "It's a risk. You could see prices moving up".

Powell cites the affordability index from the National Association of Realtors and tells reporters at a Wednesday news conference that homes are generally more affordable now than before the housing crisis.