Banks Rejoice as Fed Hikes Rate, Raises Economic Outlook

by Frankie Norman March 24, 2018, 12:34
Banks Rejoice as Fed Hikes Rate, Raises Economic Outlook

It also said it will keep shrinking its bond portfolio. Rising interest rates are typically good for savers, who are likely to receive higher interest on the savings they have in the bank.

Taken together, the Fed's actions and forecasts Wednesday suggest a belief that the economy remains sturdy even almost nine years after the Great Recession ended.

The Federal Reserve Chairman, Jerome Powell, warned that a USA trade war would pose a risk to the outlook for the United States economy.

"The cumulative effect (of rate hikes) can be quite significant", said Greg McBride, chief financial analyst for Bankrate.com.

CHINA TRADE: China's Commerce Ministry said it would take "all necessary measures" to defend China's interests if President Donald Trump targets China for allegedly stealing American technology or pressuring US companies to hand it over.

While the Fed is "very alert" to any increases that could result from the very low unemployment rate, which normally would be expected to drive wage increases, "it's not something we observe at the present".

Wall Street stocks finished a volatile session modestly lower on Wednesday after the Federal Reserve lifted interest rates and pointed to a stronger USA growth outlook following tax cuts. They now expect the unemployment rate to fall to 3.8 percent this year and 3.6 percent in 2019, a low level by historical standards. Officials announced that this year's forecast remains at 1.9 percent for both core and headline inflation, while 2019 is predicted bring an increase to 2.1 percent for core personal consumption expenditures.

Moreover, with President Donald Trump's announcement of tariffs of 25% and 10% on steel and aluminium, trade war threats are looming and may further impinge on the way foreign investors allocate funds for emerging developing economies. Other social media companies in the USA also finished the day lower on concerns that the government might enact new laws affecting their businesses. The statement described economic activity as rising at a "moderate rate", a slight downgrade from January, when the Fed described the economy as rising at a "solid rate".

In December, the Fed predicted USA gross domestic product (GDP) to grow 2.5 percent this year, 2.1 percent in 2019 and two percent in 2020.

Those higher estimates may reflect the expected impact of the additional government spending. The target range for the federal funds rate was increased by a quarter percentage point to 1.75 per cent from 1.5 per cent, the highest since the 2008 collapse of Lehman Brothers Holdings Inc. froze credit markets worldwide. Stocks recovered briefly and then slid into the close, a reflection of the market's confusion over Fed policy.

The financial markets have been edgy for weeks, and Powell's back-and-forth comments have been only one factor.

"In the earlier period, strong head winds sapped the momentum of the recovery and weighed down the path of policy", she added. More protectionist measures by the Trump administration could lead to retaliation by trading partners, which will inevitably affect medium- to long-term prospects for global trade and growth. In his remarks, Powell also noted that a number of FOMC members reported that businesses are concerned by the change in USA trade policy.


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