WASHINGTON — The Federal Reserve is raising its key interest rate for the third time this year and foresees three additional hikes in 2018, a vote of confidence that the U.S. economy remains on solid footing 8
The Fed said Wednesday that it's lifting its short-term rate by a modest quarter-point to a still-low range of 1.25
The central bank said in a statement after its latest policy meeting that it expects the job market and the economy to strengthen further. Partly as a result, it expects to keep raising rates at the same incremental pace next year under the leadership of Jerome Powell, who will succeed Janet Yellen as Fed chair in February.
"Stronger GDP growth forecasts and expectations that unemployment will continue to fall" were clearly behind the Fed's move, said Ken Matheny, an economist at IHS Markit.
The Fed's action was approved 7-2, with Charles Evans, president of the Fed's Chicago regional bank, and Neel Kashkari, head of the Minneapolis Fed, voting no. Both preferred to keep the benchmark rate unchanged.
The central bank's message Wednesday departed little from its recent statements. It still stresses that it expects to keep raising rates gradually. Its projections for future hikes, based on estimates of 16 officials, showed that the median expectation remains three rate hikes in 2018, at least two in 2019 and two more in 2020.
By then, the Fed's target for short-term rates would have reached 3.1
At a news conference after the Fed's meeting, Yellen said she would work to provide a smooth transition for Powell. Powell has been a Yellen ally who backed her cautious stance toward rate hikes in his five years on the Fed's board. Yet no one can know for sure how his style of chairmanship or rate policy might depart from hers.
What's more, Powell will be joined by several new Fed board members who, like him, are being chosen by President Donald Trump. Some analysts say they think that while Powell might not deviate much from Yellen's rate policy, he and the new board members will adopt a looser approach to their regulation of the banking system.
On Wednesday, the Fed boosted its forecast for growth to 2.5
The Fed modified its forecast to take into account that unemployment has fallen lower this year than it had expected. For the next two years, the Fed projects that unemployment will decline from the current 4.1
It also expects inflation to rise from 1.7
Even before Wednesday, most analysts had said they thought the still-strengthening U.S. economy would lead the Fed to raise rates three more times next year. A few, though, have held out the possibility that a Powell-led Fed will feel compelled to step up the pace of rate hikes as inflation finally picks up and the economy, perhaps sped by the proposed Republican tax cuts, begins accelerating.
At his Senate confirmation hearing last month, Powell impressed his listeners as an evenhanded moderate who
Besides Powell, Trump has so far chosen two new members for the seven-member board. And he has the opening to nominate three more, including a Fed vice chair.
In his view of the Fed, Trump has made clear that he
It was in the midst of the 2008 crisis that the Fed cut its key rate to a record low near zero and left it there for seven years. Eventually under Yellen, the Fed responded to a steadily improving job market and economy by modestly raising the rate — in December 2015, in December 2016 and now three times this year.