The Federal Reserve hiked short term interest rates on Wednesday for the third time this year by a quarter point, in what has been described as a sign of optimism from the central bank with regard to America’s economic prospects in 2018. On top of that, the Federal Reserve plans three more interest rate hikes in 2018, as the bankers seem to believe that the economy is on solid ground.
The policy statement from the FED reads:
“Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate,”
The Federal Reserve upgraded its forecast for US economic growth in 2018 from a previous 2,1% to 2,5%. However, the FED’s long run forecast stays at 1.8%. Speaking of short term interest rates, this is what banks pay overnight when borrowing money from other banks, and the Federal Reserve key interest rate target is now ranging between 1,25% and 1.5%, which means that longer term interest rates (like for business loans, mortgages or consumer loans) will also be affected. However, FED’s Wednesday announcement was hardly a surprise, i.e. it was widely expected, especially by investors in futures and economists. The central bank claims that raising interest rates gradually as the economy improves is good for the economy overall, yet many non-mainstream economists fear that the FED is trying to create a recession, which may arrive just in time for the 2018 mid-term elections. And who’ll be blamed if not Trump?
In the 8 years under Obama, the FED increased the interest rate just once. In just months under Trump, it has been raised 4 times (once in 2016 in December and 3 more times in 2017) and 3 more are anticipated for next year. So what is the FED saying about the Obama vs the Trump economies? Obama needed all the help the FEDcould muster and to no avail.