Fed Raises Interest Rates, Signals 2 More Hikes This Year

Fed Raises Interest Rates, Signals 2 More Hikes This Year

The Fed's twin mandate is to bolster employment while controlling inflation, and in the current environment more rate rises appear inevitable. Ahead of the announcement, markets were pricing in a almost 100% chance of a rate hike.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run.

This hike, which was widely expected, is the Fed's second of 2018, and the central bank signalled it is likely to do two more increases by the end of this year. The Fed has indicated that it is likely to raise rates three or four more times this year.

Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy.

In their statement, Fed policymakers noted that the labor market "has continued to strengthen and that economic activity has been rising at a solid rate". Investors had given just over a 91 percent chance of a rate rise on Wednesday, according to an analysis by CME Group.

The Federal Reserve expects the USA gross domestic product to grow by 2.8% in 2018, up from March's forecast of 2.7%. For 2020, the Fed foresees a median rate of 3.4 percent.

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The committee sees further declines the unemployment.

Projections released after the Fed's two-day meeting in Washington show policymakers expect the USA economy will grow 2.8% this year, while unemployment falls to 3.6%. The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target.

Negative for gold though is that the central bank also forecasts tame inflation pressures throughout year.

The Fed's pace of rate hikes for the rest of the year could end up reflecting a tug of war between a sturdy economy and the risks to growth, including from a potential trade war that could break out between the United States and such key trading partners as China, the European Union, Canada and Mexico. Inflation expectations are slightly higher this year compared to March's forecast of 1.9%. At this point, there's been little evidence that wage or price inflation is accelerating. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast. It is not a solicitation to make any exchange in commodities, securities or other financial instruments.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc.

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