Fed hikes rates, points to two more increases by year’s end

Fed raises rates
Fed raises rates

The Federal Reserve hiked its benchmark short-term interest rate a quarter percentage point Wednesday and indicated that two more increases are likely this year. The move pushes the funds rate target to 1.75 percent to 2 percent. The rate is closely tied to consumer debt, particularly credit cards, home equity lines of credit and other adjustable-rate instruments. In an unusually terse statement that ran just 320 words, the Federal Open Market Committee changed multiple phrases from its previous missives, pointing to a more optimistic view on economic growth and higher inflation expectations. Though the statement contained less than half the words of some of the committee’s typical communiques, there was a lot to unpack in the language. The committee said economic growth has been “rising at a solid rate,” an upgrade from “moderate” in May. The unemployment rate has “declined,” as opposed to “stayed low,” and household spending “has picked up,” an upgrade from “moderated.” With that in mind, the committee said two more rate hikes were appropriate, bringing the 2018 total to four increases. Its first hike this year was in March. “The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term,” the statement said. Markets had been waffling over expectations for a fourth rate hike this year — the FOMC also increased the funds rate target in March — and prior to the meeting were pricing in a 46.5 percent chance. The latest projections from committee members indicate the funds rate to rise to 2.4 percent by the end of the year. The committee also indicated it continues to expect three more rate hikes in 2019, even with the fourth one this year.