Fed hikes key interest rate for 2nd time in 2018
WASHINGTON — The Latest on the Federal Reserve policy meeting (all times EST):
Federal Reserve policymakers expect to raise their benchmark interest rate four times this year, up from a March projection of three, reflecting their forecast that the unemployment rate will fall to a 50-year low later this year and inflation will rise more quickly.
The Fed also decided Wednesday to lift short-term rates for the second time this year, to between 1.75 and 2 percent. That suggests they will hike rates twice more this year to between 2.25 and 2.5 percent. Fed policymakers also expect three hikes next year, the same number they forecast in March, and one in 2020.
Fed officials expect unemployment to reach 3.6 percent by the end of this year, the lowest since 1969, down from an earlier forecast of 3.8 percent. Inflation will reach 2.1 percent late this year, slightly above the Fed’s target, up from 1.9 percent previously forecast.
As widely anticipated, the Federal Reserve has raised its short-term federal fund rate — what banks charge each other— by 0.25 points to a range of 1.75 to 2 percent.
Fed officials voted unanimously on Wednesday to increase this key rate, which influences the flow and supply of money in the U.S. economy. The statement by Fed officials explaining the vote also hinted at a slightly faster pace for future rate increases. They removed previous language that the rate “is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
It’s the second rate increase of this year and Fed officials anticipate one or two additional hikes before 2019.
Fed Chair Jerome Powell will discuss the decision at a 2:30 p.m. Eastern time news conference.
Homebuilders are taking a beating on Wall Street ahead of Wednesday afternoon’s Federal Reserve meeting, where analysts are expecting a rate increase.
The Fed’s rate hikes can translate into higher interest rates for credit card holders and homeowners with adjustable-rate mortgages or home-equity lines of credit.
The construction industry is already wrestling with rising costs for labor, material and available land. External factors, like rising gasoline prices, may also be putting the squeeze on potential buyers.
Fewer Americans signed contracts to buy homes in April due to a shortage of inventory. Mortgage rates had ticked down the past couple weeks, providing some relief for potential homebuyers.
But with a quarter-point hike expected from the Fed, that relief may be short-lived.
KB Home shares fell 6 percent. Meritage Homes Corp., PulteGroup, Lennar Corp. and Dr. Horton all slid around 5 percent. Materials companies and home improvement stores like Lowe’s are also being pressured.
Mortgage rates remain historically low, but a combination of rising costs is weighing on the sector broadly.
Stocks are edging up ahead of an interest rate meeting by the Federal Reserve.
Futures for the Dow are up 0.1 percent and those for the S&P 500 are 0.2 percent higher. European indexes are up, with Germany’s DAX gaining 0.2 percent and Britain’s FTSE 100 0.3 percent higher.
The dollar, meanwhile, is edging up as well, gaining 0.1 percent against the yen, to 110.52 yen.
Traders widely predict the Fed will raise its main rate by a quarter point on Wednesday. They also expect its chairman, Jerome Powell, to hint during a news conference that the central bank might accelerate the pace of rate hikes slightly in coming months.
Financial markets are steady as investors look ahead to an expected interest rate increase from the Federal Reserve later Wednesday.
Dow and S&P 500 futures are flat and European indexes are mixed. Britain’s FTSE 100 is down 0.1 percent and France’s CAC 40 is 0.2 percent higher.
While traders widely expect the quarter point rate increase, they will be paying close attention to a news conference by Fed Chair Jerome Powell for hints on whether the central bank might accelerate the pace of rate hikes in coming months.
The U.S. economy is adding jobs at a strong pace and inflation has risen, leading some economists to think that the Fed will indicate that it may raise rates four times this year, up from its current forecast of three hikes.
The Federal Reserve is set to modestly raise its key short-term interest rate on Wednesday for the second time this year. But attention will be focused mainly on any hints that the Fed might accelerate its rate hikes in the coming months.
Some economists think the Fed will signal that it expects to raise rates four times this year, up from its current projection of three hikes. Others believe the central bank will stick with its projection of three rate increases, partly out of concern that rising trade tensions triggered by President Donald Trump’s aggressive policies might slow global growth.
The policymakers will reveal their action in a policy statement and in updated economic forecasts, followed by a news conference by Chairman Jerome Powell.