The Federal Reserve said Wednesday that it sees the federal funds rate at 2.4 percent by the end of 2018, unchanged from its June forecast.
Those translate to another rate hike expected before the end of the year and three in 2019.
The central bank also left its 2019 projection unchanged at 3.1 percent.
Four times a year Federal Reserve policymakers at the FOMC submit their projections about where short-term interest rates are headed. The results are the central bank’s so-called dot plot — a visual representation of how many members think rates will hit a given level over the short, medium and longer run.
Read More : Federal Reserve issues FOMC statement – September 26, 2018
As widely expected, the Federal Open Market Committee raised the federal funds rate 25 basis points to a range between 2 percent and 2.25 percent.
✅ The Federal Open Market Committee increases the fed funds rate 25 basis points to a range 2 percent to 2.25 percent.
✅ The FOMC also projects one more hike before the end of the year and three in 2019.
✅ Wednesday’s statement drops language saying that “the stance of monetary policy remains accommodative.”
✅ Fed officials collectively estimate gross domestic product to rise 3.1 percent in 2018, an upward revision from the 2.8 projection in June. The forecast for 2019 also moved higher by 0.1 percentage points to 2.5 percent.
Economic outlook
Along with the move, committee members showed a more optimistic view of the U.S. economy.
The forecast for 2019 also moved higher by 0.1 percentage points to 2.5 percent. The estimate for 2020 remained at 2 percent.
Committee members for the first time released their 2021 projections, which see the economy growing at a 1.8 percent rate, aligning with the long-range forecast.
In the latest installment of their quarterly projections, FOMC officials collectively estimated gross domestic product to rise 3.1 percent in 2018, an upward revision from the 2.8 projection back in June.
“The Fed is looking at an economy that in 2021 is slowing, and this is the first time they’ve said that,” said Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch. “I think the confidence about how long the economy is expected to stay strong is waning.”
Forecasts for interest rate moves ahead remain unchanged from June, though the expectations for individual members, expressed through the so-called dot plot, showed a greater range of estimates.
The unemployment rate forecast ticked higher to 3.7 percent from June’s estimate of 3.6 percent.
The committee still indicated another rate hike before the end of 2018 and likely three more in 2019. There’s one more increase factored in for 2020, bringing the median range to 3.4 percent where it is expected to stay through 2021 before settling to 3 percent over the longer run, an increase from June’s projection of 2.9 percent.
There was some upward drift in the grid. A dot widely believed to belong to St. Louis Fed President James Bullard, for instance, rose a quarter point for 2018. Two more hawkish dots for 2020 that saw the range between 4 percent and 4.25 percent drifted lower, though the dots overall for that year shifted higher.
Jobs
The Fed estimates the 3.9 percent unemployment rate will fall to 3.7 percent by the end of the year, slightly above their prior forecast, and 3.5 percent by the end of 2019.
“Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low,” the Fed said.
Annual inflation rose to 2.3 percent in July, above the Fed’s 2 percent target. However, Fed officials have said they can tolerate faster inflation for a while because it hovered below their benchmark for years. And a core measure of inflation that excludes volatile food and energy items was at the Fed’s 2 percent goal in July.
The central bank expects annual inflation to dip to 2.1 percent by the end of the year and 2 percent by the end of 2019. It predicts core inflation will hold steady at 2 percent this year before ticking up to 2.1 percent next year.
Monthly job gains have averaged 207,000 this year, up from 182,000 in 2017. And yearly wage growth hit a nine-year high of 2.9 percent in August. Low unemployment is making it tougher for employers to find workers, prodding them to fatten paychecks. The Fed is trying to get ahead of a surge in wages and prices by continuing to gradually raise rates to modestly crimp borrowing and economic activity.
While inflation is picking up, it has largely remained subdued despite a revved-up economy, allowing the Fed to lift rates gradually. Many economists cite factors such as the spread of low-priced online shopping and the decline of unions.
How fast rates will rise
The Fed reiterated that it plans “further gradual increases” in its benchmark rate. It maintained its forecast for a fourth rate hike this year and three more in 2019.
Fed officials expect the key rate to rise to 2.4 percent at the end of the year, 3.1 percent at the end of 2019 and 3.4 percent at the end of 2020, according to their median estimate.
The projection indicates officials aren’t factoring any long-lasting impact from the trade skirmishes into their forecasts – at least not yet.
President Trump has publicly complained about Fed rate hikes in recent months, saying they’re tempering the rapid growth he has promised. But Powell said Wednesday, “We don’t consider political factors or things like that.”
