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Fed Raises Interest Rates By 25 Basis Points, Boosts Economic Projections


In a widely expected move, the Federal Reserve announced its decision to raise interest rates by 25 basis points on Wednesday.

The Fed decided to raise the target range for the federal funds rate to 2 to 2.25 percent, citing realized and expected labor market conditions and inflation.

The accompany statement said data received since the Fed's August meeting indicates the labor market has continued to strengthen and that economic activity has been rising at a strong rate.

The central bank also reiterated that average job gains have been strong in recent months and noted annual inflation remains near 2 percent.

Looking ahead, the Fed said future adjustments to the target range for the federal funds rate will be based on realized and expected economic conditions relative to the central bank's 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," the Fed said.

The Fed's projections for future rate hikes points to one more increase in rates this year and three rate hikes next year.

The outlook for GDP growth in 2018 was upwardly revised to 3.1 percent from 2.8 percent, while the median projection for GDP growth in 2019 inched up to 2.5 percent from 2.4 percent.

"Our view is that the Fed will press ahead with gradual rate hikes for now, but that officials are still underestimating just how quickly the economy is likely to lose momentum next year, as the fiscal boost fades and monetary tightening bites," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "As economic growth slows below its potential rate around the middle of next year, we expect the Fed to call time on rate hikes and ultimately begin cutting rates by early 2020."

In his subsequent press conference, Fed Chairman Jerome Powell said it is not in the central bank's forecasts to see inflation surprise to the upside.

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