Dollar retreats from 3-week high as attention shifts to Fed

Dollar retreats from 3-week high as attention shifts to Fed

The Fed raised rates to a range of 1.5 per cent to 1.75 per cent, as was widely expected, and newly appointed chairman Jerome Powell indicated that inflation should "move up in coming months and stabilise" at the two per cent target.

In the forecasts, US central bankers projected a median federal funds rate of 2.9 percent by the end of 2019, implying three rate increases next year, compared with two 2019 moves seen in the last round of forecasts in December.

The Fed statement said monetary policy continues to provide stimulus to the economy and repeated that even with "further gradual adjustments. economic activity will expand at a moderate pace".

The median projection for the federal funds rate is 2.1 per cent at the end of this year, 2.9 per cent at the end of 2019 and 3.4 per cent at the end of 2020. The Fed is expected to effect three more rate hikes this year. The higher rates are likely to be welcomed by savers but not by borrowers, who will face more expensive loan terms.

'We have seen moderate increases in wages and price inflation, and we seem to be seeing more of that.

"Employment growth has been strong in recent months, and the unemployment rate remains low", says the statement of the Federal Open Market Committee. The federal funds rate forms the basis of other interest rates, such as for credit cards and mortgages.

Bodies recovered after Marine helicopter crash
Marine Corps CH-53E Super Stallion helicopter sits at North Island Naval Air Station Coronado, Calif., on April 12, 2015. It is essentially used for minesweeping, transportation and is capable of carrying dozens of troops and tons of cargo.

There was no dissent from the decision, but more important was the outlook - three rate rises in total for this year, and a total of 8 by 2020, indicating a Federal Funds rate of 3.40% in two and a half years time. More specifically, if the Fed's goal is to normalize rates, what does it consider normal?

YDSTIE: And the members of the Fed's policymaking committee boosted their forecasts for growth in 2018, raising it to 2.7 percent - up from their December estimate. "Though I expect that a sequence of further rate hikes will be appropriate over the next couple of years, that view is based on certain assumptions about how economic conditions will evolve going forward", he said. The jobless rate is expected to trough at just 3.6 percent next year, as compared with the earlier 3.9 percent. But investors have been skeptical; with the median forecast of 2.1 percent inflation in 2020, Fed officials have put their projections where their mouths are.

A bigger risk for now is the looming trade war following the US' decision to hike import tariffs on steel and aluminum.

Taken together, the Fed's actions and forecasts Wednesday suggest a belief that the economy remains sturdy even almost nine years after the Great Recession ended. The Fed also outstandingly augments its prediction for US growth the two successive years.

"There is no sense in the data that we are on the cusp of an acceleration of inflation", Powell told reporters on Wednesday in Washington.

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