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Fed Raises Interest Rates as Focus Turns to 2018

Published on 15 May 2019 / In News & Politics

Fed Raises Interest Rates as Focus Turns to 2018<br />In an updated economic forecast, Fed officials predicted<br />that inflation would stay below the Fed’s 2 percent target next year, and then stay at 2 percent in 2019 and 2020.<br />The Fed appears to be assuming either a surge in productivity growth or a leap in participation; they might happen<br />but we think a more likely end-2018 unemployment rate is 3.5 percent or less; had the Fed forecast that, they would have had to put in another rate hike in the dot-plot for next year.<br />• Officials did not deviate from their 2018 outlook for interest rates or inflation and continued to signal three interest rate increases next year.<br />It forecast 2.5 percent growth in 2018, well above its previous forecast of 2.1 percent growth in 2018, published in September.<br />Ian Shepherdson, chief economist, Pantheon Macroeconomics:<br />The key result of the growth revision to next year is<br />that unemployment is now expected to end the year at 3.9 percent, down from the previous 4.1 percent.<br />They forecast the Fed’s benchmark rate would rise to 3.1 percent by the end of 2020, up slightly from the last forecast of 2.9 percent.<br />• The Federal Reserve, in a widely expected decision, raised its benchmark rate<br />by a quarter of a percentage point, to a range of 1.25 percent to 1.5 percent.<br />With Wednesday’s rate increase a foregone conclusion — investors had put the chances at 100 percent — attention<br />focused on what the Fed had to say about next year, particularly about the effect of the prospective tax cut.

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