Interest Rate Hike
The benchmark interest rate has increased for the second time this year due to the resilient US economy.
The fed now anticipates 4 total interest rate hikes this year apposed to the 3 it had originally anticipated. This means consumers and businesses can expect higher rates on their loans in the short term.
The modest, quarter point increase, reflects the growing economy, stronger job market and a steadiness of growth, finally leading to the Fed’s 2% inflation target.
Some economists believe the Fed has left little doubt they are prepared to increase the pace of the credit tightening in order to prevent higher inflation down the road.
Chief financial analyst at Bankrate.com, Greg McBride commented, “The labor market is getting tighter, and price pressures are picking up. The Fed is prepared to be quicker about pushing interest rates higher.”
In a recent news conference, Jerome Powell commented, “The economy is in great shape,” pointing out that the interest rate increase is more related to that fact, and not that the Fed is eager to raise the rate.
Everybody remembers (and some still feel) the financial crisis of 2008. During that time, and for seven years after, the Fed kept the rate at a record (near 0) low and didn’t see its first increase until 2015. ’15 and ’16 saw 1 interest rate increase, and 3 in ’17.
The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat. When the Fed tightens credit, it aims to do so without derailing the economy. But if it miscalculates and overdoes the credit tightening, it can trigger a recession.
At nine years, the economic expansion is now the second-longest in history. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001.