Fed raises rates, steepens path of hikes as outlook strengthens

With futures markets anticipating another increase in June Jerome Powell’s Fed could leave its rate outlook unchanged until then to see how the economy absorbs the $1.8 trillion in stimulus expected from the Trump administration tax cuts and planned

Fed raises rates, steepens path of hikes as outlook strengthens

"In theory, a individual tax bill that lowers tax rates should encourage more labor force participation".

The Aussie dollar rose, United States bond yields edged higher with the 10 year benchmark security seeing its rate top 2.92%, and then retreated back to around 2.88% in late trading as investors realised the Fed wasn't as aggressive as first thought.

The Federal Reserve on Wednesday lifted US interest rates as expected, enthusiastic about the road ahead, saying the economic outlook had strengthened in recent months.

"The economic outlook has strengthened in recent months", the policy-setting Federal Open Market Committee said in a statement Wednesday.

In addition, job gains will drive the unemployment rate down to 3.6 percent next year, below the previous 3.9 percent estimate, and stay there in 2020.

Yesterday, on Wednesday, March 21, 2018, "the Fed", as it's colloquially called, immediately raised interest rates by one-quarter percent, or 0.25%, to a new "band" - in simple terms, just a level between which interest rates fall - of 1.5% to 1.75%.

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Wednesday's increase was the Fed's first major decision since Jerome Powell replaced Janet Yellen as its chair. The long-term average interest rate in the U.S. is 5.73% (range 0.25% (Dec 2008) to 20% (Mar 1980)).

The vote to lift the federal funds rate target range to 1.5% to 1.75% was a unanimous 8-0.

In February, 313,000 jobs were added to the economy - the biggest increase in 1 1/2 years - and the unemployment rate held steady at 4.1 percent.

The median projection for the long-run fed funds rate ticked up to 2.9% from 2.8% in December. In June, it raised this rate to between 1.0 and 1.25%.

The median dot pot implies three hikes in 2018, but Fidelity International portfolio manager Nick Peters warned investors not to be fooled by the graph.

In response, banks across the USA raised their prime lending rate to 4.5% from 4.25%.

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If the Fed keeps raising its long-run target for its benchmark interest rate, it would nearly certainly mean the central bank plans to raise rates more aggressively.

If you're carrying a credit card balance, now might be the time to consider paying it off, or reducing it significantly if you can. That means there will be two rate rises over the rest of 2018.

Credit card debt is at a record high in the USA, totalling more than $1 trillion in 2017. That's the benchmark that many business and consumer rates are based on. These are called adjustable rate mortgages, or ARMs, and rates on these mortgages also rise when interest rates increase, making it more expensive for homeowners.

The Federal Reserve is meeting again.

The head of the USA central bank says members of its rate-setting committee have reported "concerns" among business leaders over the impact of President Trump's protectionist agenda.

Jeremy Quittner is the financial writer for Stash.

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