March Federal Open Market Committee meeting reaction
As anticipated, the U.S. Federal Reserve (Fed) raised the target range for the fed funds rate by 25 basis points today. The range is now from0.75% to 1.0%. The Fed’s policy statement and Chair Yellen’s press conference emphasised that the economy is headed around their anticipated pace, and we can likely expect two more rate hikes this year.
Here, Robin Anderson, senior global economist, Principal Global Investors shares her thoughts on the Fed’s March meeting, and what’s in store for the U.S. economy looking ahead to 2018.
16 March 2017
“Just as everyone anticipated, the Fed moved up rates by 25bp increasing the lower band to 0.75% and the upper band to 1.0%. The Fed’s summary of economic projections didn’t change too much. On the margins, you did see some changes to core inflation; an upgrade in the forecast for GDP in 2018; and the Fed did lower the equilibrium for the employment rate going forward to 4.7%. We also saw the Fed consolidate around three rate hikes this year.
“The Fed’s policy statement emphasised it is taking a symmetric approach to a 2% inflation target. That tells me the Fed will be tolerant of headline inflation getting above 2%, as it’s doing at the moment.
“It seems to me that the economy, being in a better position, will move two more times this year – in contrast to those who expected a more hawkish approach.”
Looking ahead to 2018
“As Janet Yellen has explicitly stated, the Fed hasn’t really considered any fiscal policy changes. There is a real risk that the economy could surprise to the upside and the Fed could be in a situation where they could be in an overheated economy, and could have to raise rates more aggressively.”