US Fed Hikes Rates Higher than S. Korea


Therefore, inflation should move up closer to 2 percent (the medium term target) as the base effect fades away.

Would rising inflation in recent months argue for a faster pace of rate increases?

Fed officials also raised their forecast for 2017 GDP growth from 2.5 percent to 2.7 percent, while increasing the 2018 expectation from 2.1 percent to 2.4 percent.

The median estimate for economic growth this year rose to 2.7% from 2.5% in December, signaling confidence in US consumers despite recent weak readings on retail sales that have pushed down tracking estimates of first-quarter activity.

In his first press conference as Fed chief, Jerome Powell said "there is no sense in the data that we are on the cusp of an acceleration of inflation".

In addition, he said "ongoing job gains are boosting incomes and confidence, [and] foreign growth is on a firm trajectory".

The Fed "faces some key questions", says economist Mickey Levy of Berenberg Capital Markets. If the FOMC assesses that the growth appears stronger, it will move more aggressively. And Levy wonders, "will the stronger economic momentum generate overheating" and push inflation too high?

The Fed's policy committee still assembled notwithstanding the snow that closed most of Washington and the resolution to hike rates was undivided.

The increases follow a seven-year period when the central bank left interest rates at or below 0%, to stimulate the economy following the recession. "Participants projections of the appropriate path for the federal funds rate reflect our gradual approach", he added. We are very alert to it.

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Some even anxious inflation could rise well above the Fed's target if the economy got too hot.

Moreover, with President Donald Trump's announcement of tariffs of 25% and 10% on steel and aluminium, trade war threats are looming and may further impinge on the way foreign investors allocate funds for emerging developing economies. But he said trade policy "has become a concern" for business leaders a round the country.

The rupee, which has strengthened a bit lately, came under pressure post the hike and is now hovering somewhere around 64.50 levels against the United States dollar, in the fourth quarter of this fiscal year.

"This decision marks another step in the ongoing process of gradually scaling back monetary-policy accommodation-a process that has been under way for several years now", Powell said in opening remarks to reporters that signaled policy continuity with his predecessor, Janet Yellen.

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However, according to the Wall Street Journal, "officials think they will need to raise interest rates at least four times this year if the economy performs in line with their expectations". The vote was unanimous for a quarter-point increase in the federal funds rate.

Although most mortgage rates are fixed, some mortgages carry variable rates as well.

Among the factors that Powell said FOMC members expect to continue to boost the outlook is the Tax Cuts and Jobs Act.