Skip Navigation Links

Bookmark and Share
Fed raises interest rates, expects 2 more hikes this year

jerome powell

  • The Federal Reserve on Wednesday announced that it raised its benchmark interest rate, as had been widely expected. 
  • This will raise borrowing costs for credit cards, auto financing, mortgages, and other loans.
  • In a notable change to its statement, the Fed removed language indicating that it expected the economy to grow at a pace that warrants only "gradual" rate increases. 
  • Fed officials expect to raise rates two more times this year for a total of four hikes; in March, they saw three rate hikes. 

The Federal Reserve on Wednesday announced that it decided to raise interest rates and signaled that it would hike later this year more times than it had expected.

In a two-day meeting, the Federal Open Market Committee (FOMC) voted to lift the target range for the federal funds rate by 25 basis points to 1.75%-2%. And in a few hours, several banks will respond by raising their prime lending rate, the starting point of borrowing costs for nonmortgage loans like credit cards and auto loans.

This was the seventh rate hike since late 2015, when the Fed first started the process of lifting interest rates from almost zero. It kept borrowing costs that low after the financial crisis to encourage businesses and consumers to spend and grow the economy.

A decade after the recession, the Fed has made progress on its objectives. The unemployment rate in May was 3.8%, the lowest since 2000 and 1969, while inflation was just below the Fed's 2% target.

The Fed expects that inflation will overshoot its target faster than it previously thought. The updated dot plot, which reflects where voting FOMC members stand, showed that they expect two more rate hikes this year; in March, officials saw three. 

In another notable change, the Fed deleted about 80 words of text that had said the Fed expected the economy to "evolve in a manner that will warrant further gradual increases" in rates. 

Fed Chairman Jerome Powell will face reporters during a press conference at 2:30 p.m. ET. This is partly why a rate hike is expected; the Fed usually only hikes when there are pressers so the chair can talk about the decision. But this could change soon, according to a Wall Street Journal report on Tuesday that said Powell was considering press conferences after every meeting. It would allow the Fed to be less choreographed and more flexible in cutting or raising rates as economic conditions warrant.

In addition to a new dot plot, the Fed will update its forecasts for economic growth and inflation — key to watch in light of some concerns about US trade policy. In March, Fed officials raised their prior forecast for gross-domestic-product growth in 2018 to 2.7%. In the longer run, they see growth at a 1.8% pace, weaker than the White House's forecast for 3% growth in 2021.

Here's the full statement: 

Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. 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 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

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. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.

SEE ALSO: Here's how the Fed raises interest rates and why it matters

Join the conversation about this story »

NOW WATCH: Trump pitched peace to Kim Jong Un with this Hollywood-style video starring Kim as the leading man

Full "The Business Insider: The Money Game" article

Disclaimer | Terms Of Use And Privacy Statement

© Metals News. All rights reserved.