Published: Sun, September 30, 2018
Markets | By Noel Gibbs

Federal Reserve hikes rates for third time this year

Federal Reserve hikes rates for third time this year

South Korea's Kospi, which reopened after a national holiday, added 0.5 percent to 2,349.99. Eastern time. The Dow Jones industrial average rose 43, or 0.2 percent, to 26,535, and the Nasdaq composite inched up 4 points, or less than 0.1 percent, to 8,012. South Korea's Kospi, which reopened after a national holiday, added 0.7 percent to 2,355.43.

"Under the current set of economic circumstances, the Fed seems to want to get the fed funds rate to 3 percent and possibly then some", said Peter Boockvar, chief investment officer at the Bleakley Advisory Group.

"In light of the economy's impressive growth momentum, the upward trends in wage and price inflation, and the limited overall tightening in financial conditions achieved so far, on net we think the risks to the funds rate are tilted to the upside of our baseline forecast", the report said.

John Williams, a long-time central banker and the newly-installed president of the New York Federal Reserve Bank, earlier this month said the United States was experiencing a "goldilocks economy", meaning the Fed only needed to raise rates gradually.

FED WATCH: The Federal Reserve has been raising rates from their record lows, when they were at basically zero following the 2008 financial crisis.

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Nick said the reaction may be a result of the new 2021 forecasts the Fed gave for the unemployment rate and GDP growth. Chairman Jerome Powell said this did not amount to a policy change. But excluding volatile food and energy prices, the inflation rate rose 2.0 percent, which hits the Fed's goal.

"We don't consider political factors", Powell said when asked about pressure from Trump to keep rates low.

In continuing with its policy of gradual rate rises, the latest one marks the Fed's eighth rate hike since 2015, indicating its favourable assessment of the USA economy. To put this figure in perspective, the long-term average U.S. interest rate stands at 5.72% (1971-2018, range 0.25 (December 2008) to 20% (March 1980)). Key sticking points include access to Canada's protected dairy market and rules on resolving trade disputes.

The Fed's statement describes US economic conditions as "strong" a number of times.

President Donald Trump has argued publicly against higher rates, complaining that they would blunt his efforts to boost growth through tax cuts and deregulation.

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But Fed Chairman Jerome Powell said the central bank was hearing a "rising chorus" of concerns from businesses around the country about uncertainty and rising costs, but that the myriad trade conflicts had yet to significantly weigh on USA economic data.

The stock markets have been also paring earlier expectations that the U.S. will win its trade wars, with shares outside the United States starting to outperform since the middle of this month.

MARKETS OVERSEAS: Indexes in Europe were mostly steady ahead of the Fed's decision.

The WSJ Dollar Index, which measures the USA currency against a basket of 16 others, rose for a second consecutive day, climbing 0.5% to 89.58.

The euro traded at $1.1749, off three-month high of $1.18155 touched on Monday. Hong Kong's Hang Seng index slipped 0.4 percent to 27,713.83. That's in line with their estimate for the economy's long-run potential and contrasts with the Trump administration's goal of sustained 3 per cent growth. "It means it will cost you more to borrow", said Richard Barrington, a personal finance expert for MoneyRates. Brent crude, used to price global oils, fell 4 cents to $81.22 per barrel. West Texas Intermediate (WTI) crude futures gained 1.3 per cent to $72.47 a barrel.

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