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