FED Raises Rates, Suggests 4 Rate Hikes For 2018
The U.S. Federal Reserve (FED) has adhered to the industry consensus, lifting the prime lending rate to 2.0% from 1.75%.
The U.S. Federal Reserve (FED) has adhered to the industry consensus, lifting the prime rate to 2.0% from 1.75%. Even bigger news than higher interest rates are FED statements alluding to a fourth rate hike for 2018. This is a somewhat new idea coming from the FOMC and is sending shockwaves through the forex.
Since the announcement, the USD has posted huge gains across the majors. If you missed the action, check out a few of the moves from the first 30 minutes after the FED’s rate decision became public:
Pair Gain/Loss Pips
EUR/USD -45 pips
GBP/USD -50 pips
USD/JPY +22 pips
USD/CAD +48 pips
AUD/USD -53 pips
The Greenback is clearly on the march against the majors. In addition to the action in the forex, U.S. indices are trading in the red. WTI crude oil has held on to modest gains, while gold pricing has slipped beneath the 1300.0 handle.
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Key Takeaways From Today’s FED Announcements
Perhaps the most substantial element of today’s meeting was the FED alluding to a fourth rate hike being in the cards for 2018. This is a major development as over half of the industry consensus called for only three rate hikes this year.
Here are a few of the more notable quotes from the FOMC release:
- “The committee expects further gradual increases to be in line with sustained expansion of economic activity.”
- “Interest rates will remain for some time.”
- “Economic activity is rising at a solid rate.”
- Updates to previously used verbiage substituted “gradual increases” for “gradual adjustments.”
- “Indicators of longer-term inflation expectations are little changed.”
When one adds up today’s rate hike, the unanimous 8-0 vote, and the overall hawkish tone of the commentary, it appears that the FED is becoming more aggressive toward managing inflation. Interest rates are going up and will continue to do so for the near future.
Another important aspect of today’s statements are forecasts from FOMC members on future interest rates. Rates for 2019 have been upgraded to 3.1% and estimates for 2020 have been held steady at 3.4%.
While these items are still on the distant horizon, the outlook is not overly positive for equities. When taken in context with the FED’s long-term estimate of U.S. economic growth at 1.8%, 2020 looks to be where the current economic cycle begins to grind to a halt.
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