Even with signs that inflation is on the decline, the U.S. central bank decided to raise its benchmark interest rate by a quarter percentage point, from one percent to one-and-a-quarter. It’s the second hike within three months.
CGTN’s Daniel Ryntjes reports.
This latest move by the Federal Reserve on Wednesday means it’s going to be more expensive to borrow dollars.
Members of the policymaking Federal Open Market Committee decided to raise the target for the federal funds rate by a quarter point, despite recent inflation numbers sitting below the Fed’s two percent target.
Following a two-day meeting, Fed Chair Janet Yellen said she was watching the inflation numbers carefully.
But she attributed the recent trend to one-off factors, including lower prescription drug prices and cellphone services.
“We have a very strong labor market and unemployment rate that continues to decline to levels not seen since 2001 and even with some moderation in the pace of jobs growth, we have a labor market that continues to strengthen,” Yellen said.
The Fed has announced that at some point this year it is likely to begin the process of gradually reducing its massive holdings of U.S. treasuries and mortgage backed securities, currently worth $4.5 trillion.
Given recent political turbulence in Washington, it’s unclear if President Donald Trump will get his wish for Congress to pass dramatic tax cuts and infrastructure spending which could further stimulate the economy.
“Many of our business contacts, I think their confidence remains high. They’ve not really changed their plans yet and have a wait and see attitude,” Yellen said.
Members of the committee share Yellen’s optimism on the jobs’ front, reducing their estimates for unemployment in 2018 and 2019.
And for this year they are sticking with their prediction that there is likely to be one further quarter point rate rise if economic trends continue.
Scott Minerd discusses interest rate hike by Fed
CGTN’s Rachelle Akuffo spoke to Scott Minerd, managing partner, chairman and CIO of Guggenheim Investments, about Fed’s decision to hike interest rates