The Fed Raises Rates for the Third Time This Year

Alex Hamilton  |

The Federal Reserve made the decision to raise interest rates by a quarter point on Wednesday, marking the third rate hike this year. A strong labor market, economic growth and inflation close to target influenced the decision.

The overnight funds rate is now 2.00% to 2.25%.

Committee members kept their median forecast for interest rates unchanged at 2.4%, which suggests that a December rate hike may still be a possibility. The outlook rates for 2019 and 2020 remained at 2.4% and 3.1% respectively.

The Fed last raised rates by a quarter point in June. Policymakers have forecasted an additional rate hike after strong economic growth, steady inflation and low unemployment.

Minutes from the July monetary policy meeting showed policymakers are expecting the economy to expand at an above-trend pace and inflation to remain near the 2% target set by the central bank.

Investors will be looking closely at remarks from Fed Chairman Jerome Powell in the post-policy meeting press conference for indications that the market can support a faster pace of rate hikes.

News of the interest rate hike put forex brokers to work, as the dollar fell against other major currencies on Wednesday afternoon. The euro was up 0.03% against the dollar mid-afternoon, trading at 1.1770. The pound was up 0.09% against the dollar, trading at 1.3192.

The Aussie gained 0.61% against the dollar to trade at 0.7294. The New Zealand dollar also rose 0.50% against the dollar, trading at 0.6680 mid-afternoon on Wednesday.

The dollar gained against the Canadian dollar, gaining 0.31% to trade at 1.2993. But the greenback fell against the Japanese yen and the Swiss franc, down 0.04% and 0.07% respectively.

The dip came after the greenback gained and then fell flat ahead of the Fed’s decision. In mid-morning trade, the dollar index rose 0.3% to 94.367.

The increase came after China announced it would cut import tariffs on products as it prepared for an escalating trade war with the U.S. The announcement pushed the dollar higher, as the cuts are expected to reduce costs for consumers and companies by 60 billion yuan this year. The U.S. earlier in the week imposed new tariffs on $200 billion worth of Chinese goods, which will increase to 25% by the end of 2018.

Ahead of the decision, the dollar fell flat after the Commerce Department announced that new home sales increased 3.5% to a seasonally adjusted rate of 629,000 units last month.

DISCLOSURE: The author has no stake in the listed equities

The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:



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