The Economy

Fed Stays on Track for Gradual Rate Hikes

The central bank didn't raise rates on Wednesday but reiterated that "further gradual increases" would be consistent with economic conditions.
Matthew HellerAugust 2, 2018

The U.S. Federal Reserve has held firm on interest rates after its latest policy meeting but signaled no deviation from its course of gradual rate hikes, possibly setting the stage for a confrontation with President Trump.

The Fed has already bumped rates up twice this year, with the benchmark federal funds rate now set at a target between 1.75% and 2%. On Wednesday, it said its policy-making committee had decided to maintain that range “in view of realized and expected labor market conditions and inflation.”

Trump has recently criticized the Fed’s monetary policy, saying it risked stifling U.S. economic with higher interest rates.

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But the Fed’s statement provided an upbeat view of the economy and reiterated that “further gradual increases” in rates would be consistent with sustaining economic expansion while keeping the labor market strong and inflation near the Fed’s 2% annual target.

The job market continues to strengthen and “economic activity has been rising at a strong rate,” the statement said. In June, the Fed took a more cautious tone, describing economic growth as “solid.”

In recent testimony before Congress, Fed Chairman Jerome Powell acknowledged U.S. tariffs on imported steel, aluminum and other products — along with tit-for-tat duties by other countries — would hurt economic growth if they didn’t ultimately lead to negotiations and lower tariffs.

But as USA Today reports, the Fed on Wednesday “signaled a rate hike is likely in September by stepping up its economic outlook and omitting any mention of the trade conflicts.”

“Nothing in the statement suggested that officials are worried about growth or prepared to slow their pace of rate increases, a development that defies some recent Fed attempts to leave its options open on next policy moves,” The New York Times said.

The markets are also expecting another hike in December, a view bolstered by the U.S. economy’s performance in the second quarter. GDP expanded at a 4.1% annual rate, the best quarterly performance since 2014, as tax cuts fueled strong consumer spending.

Economists are forecasting that another solid jobs report is coming from the Labor Department on Friday.

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