US Federal Reserve raises interest rates amid strong growth

Adjust Comment Print

Mickey Levy is the chief economist for the United States, the Americas, and Asia at Berenberg Capital Markets, LLC and a member of E21's Shadow Open Market Committee (SOMC).

The Fed raises rates when the economy is growing to keep inflation in check.

The broad-based S&P 500 shed 9.59 points (0.33 per cent) to 2,905.97, while the tech-rich Nasdaq Composite Index lost 17.10 points (0.21 per cent) to 7,990.37. France's CAC 40 added 0.6 percent, while Germany's DAX rose 0.1 percent.

The jobless rate is now 3.9%.

Mr Powell said the U.S. economy has successfully absorbed the increases so far.

The affordability index assumes a 20 percent down payment. But the cost of living increased at roughly the same rate, effectively wiping out the gains for most consumers. In a news conference after its meeting, though, Chairman Jerome Powell said the removal of the "accommodative" language did not amount to a policy change. "They're going to change over time, so that's something you should definitely give a call to your credit card company about", Ramona Ortega said.

During his remarks Wednesday, Trump reiterated that Fed officials are raising rates because the US economy is "doing so well".

"The Fed removed the word "accommodative" from its statement and to me that's a dovish signal", said Mark McCormick, head of North American FX Strategy at TD Securities in Toronto. "That's who we are".

Wednesday's Fed decision is not about the expected rate hike, however.

TOKYO, Sept 27 (Reuters) - The dollar steadied against its peers on Thursday as a brief boost from the latest U.S. Federal Reserve interest rate hike faded, with lower U.S. Treasury yields reducing support for the greenback.

Rates for longer-term CDs are also rising, and the national rate for a five-year CD is up to 1.11 percent from 0.87 percent a year ago. Britain's FTSE 100 was also up 0.1 percent.

Bond yields didn't move much following the announcement.

FOMC's updated economic projections point to 3 rate hikes in 2019.

F-35 makes American combat debut, strikes Taliban target in Afghanistan
The Air Force will receive most of the aircraft, the Navy version will be specifically created to take off and land on aircraft carriers.

Flake Announces He Will Vote to Confirm Kavanaugh
Jeff Flake (R-Ariz.) as the Senate Judiciary Committee votes Friday on the nomination of Brett Kavanaugh to the Supreme Court. But she stressed that experience as an activist does not matter in situations like her confrontation with Flake.

South Korea at United Nations urges world to 'respond positively' to North Korea
At that meeting, Pompeo "accepted Chairman Kim's invitation to travel to Pyongyang next month", said the State Department. Kim also has suggested that declaring an end to the war would have nothing to do with American troops or the alliance.

It still foresees another rate hike in December, three more next year, and one increase in 2020.

The Fed noted that inflation has remained near its 2 percent objective.

The Fed hikes could mean greater interest on your savings account, according to Richard Barrington. But he said that the economic impact of U.S. tariffs is "still relatively small".

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington on Wednesday, when the Fed raised a key interest rate for the third time this year in response to a strong US economy and signaled that it expects to maintain a pace of gradual rate hikes.

"We hear about labor shortages, but where is the wage reaction?" he asked in June, right after the Fed raised the federal funds rate for the second time this year - to between 1.75 percent and 2 percent. But he also said that inflation doesn't seem likely to spike, which would allow the Fed to continue on its gradual path to raise rates off the record lows they set following the 2008 financial crisis.

The Fed is increasing rates, ignoring the escalating trade war among the world's two biggest economies, which is threatening to derail the growth outlook of the global economy.

Investors will be closely watching to see what the Fed and Chairman Jerome Powell say about what's coming next. But as long as the rise in rates is due to a strengthening economy, rather than fears about a surge in inflation, analysts say stock funds should be able to hold steady. The yield on the 10-year Treasury note slipped to 3.09 percent from 3.10 percent a day earlier.

And the Bank of Canada is also expected to raise rates in the coming years, but perhaps not quite aggressively as the USA will.

Stock markets are mixed, with Wall Street futures up a modest 0.2 percent, ahead of the meeting.

The rise in the dollar helped perk up European stocks as the slide in the value of the euro and pound helps exporters. The contract dropped 1 percent on Wednesday to close at $71.57. But concern is growing that China won't change its practices, the higher tariffs on US and Chinese goods will become permanent and both economies - the world's two largest - will suffer.

Now investors are looking for clues about how high the Fed might go or signs its pace could accelerate. "So I'm anxious about the fact that they seem to like raising interest rates", he said at a news conference.

The benefits of tax cuts that took effect this year, along with increased government spending, for example, are widely expected to fade.

The point is that that the Fed wants to get to neutral. For the latter, consider banking online, where you can find numerous savings accounts with rates around 2 percent.

Comments