The Federal Reserve has increased its interest rate by a further 0.25%, moving the rate towards the long-term average. The move means that US Federal Reserve interest rates are in a band from 1.75 to 2%, the highest rates (obviously) since the worst of the global financial crisis which saw rates ease to 0.25% at the end of 2008. The increase is the seventh incremental rate hike (all at 0.25%) since the Fed started to tighten its monetary policy in December 2015.
The move was widely anticipated and had largely been factored into Forex trading. Whilst the Euro dipped against the Dollar from $1.17888 down to $1.17353 on news of the decision, the change was transitory with the Euro trading at $1.18091 at the time of writing.
Following on from the Federal Open Markets Committee meeting, which announced the move, it has emerged that a two further rate hikes (rather than one) are anticipated in the course of the year. The increase in the interest rate makes borrowing more expensive and ought to have a dampening effect on inflation. The Fed is expecting inflation to come in at around 2% this year, in line with its target value. Commenting on the rise, the Fed’s chairman, Jerome Powel, said: "The main takeaway is that the economy is doing well".
The latest Fed projections predict that growth will come in at 2.8% for 2018 and unemployment will continue to ease to 3.6%. On the pessimistic side of the balance sheet, Powell noted that concerns over international trade were increasing which was leading some businesses to defer investment, but he said that this was yet to feed through to the economic numbers.
The long-term average interest rate for the Federal Reserve is 5.72% (1971-2018) with a record low of 0.25% (December 2015) and a record high of 20% (March 1980).