Did Jay Powell's Rate Hike Kill The President?

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The Fed forecast one rate increase in 2020.

As investors flocked to the safety of government bonds, the 10-year U.S. Treasuries yield fell below its May 29 low of 2.759 per cent to as low as 2.750 per cent, a level last seen in early April.

The Fed has said the USA economy is healthy enough that the ultra-low rates put in place during the financial crisis are no longer necessary.

There were no dissents in the policy decision, it added.

"There's significant uncertainty about the - both the path and the ultimate destination of any further rate increases", Mr Powell told reporters. The pound trimmed a gain after Britain's central bank said it now sees inflation slowing to below the 2 per cent target as soon as January. But this time, risks to the economy appear to be rising.

The stock market's fall from record highs is worrisome to anyone saving for college or retirement, with many remembering the painful losses their 401 (k) balances sustained during the financial crisis.

With that in mind, the Federal Open Market Committee, a group that includes Fed governors and a rotating cast of regional Federal Reserve Bank presidents, voted unanimously to increase the target for the federal funds by a quarter-point to a range of 2.25 to 2.5 percent.

By diminishing its bond market holdings each month, the Fed puts further upward pressure on interest rates, something Trump explicitly requested them this week to stop. The Standard & Poor's 500-stock index fell 2.1 per cent.

Perhaps the most telling thing Chairman Powell said today is that "monetary policy is a forward-looking exercise".

Markets worry about the impact of higher borrowing costs squeezing consumers and businesses in the world's biggest economy as well as the knock-on effects across the globe - such as in those countries which have borrowed heavily in dollars to fund growth.

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In particular, the FOMC made a decision to reduce the number of rate hikes to two in 2019 (as we suggested in this post yesterday), down from three in the previous communication. The unemployment rate, now at a 49-year low of 3.7 per cent, is expected to fall to 3.5 per cent next year and rise slightly in 2020 and 2021. The median projection is for the benchmark rate to end 2021 at 3.1 per cent, down from a prior estimate of 3.4 per cent.

The president fired off two tweets this week objecting to a rate hike.

The central bank did bow to rising uncertainty about global economic growth, and expectations the USA economy will slow next year, with fresh economic forecasts showing officials at the median now see only two more rate hikes next year compared to the three projected in September. Just six officials expect the Fed will need to raise rates three times or more, down from nine officials in September, and six officials believe the Fed may need to raise rates no more than once, up from three officials in September....

The Federal Reserve's plan, announced Wednesday, to keep raising interest rates was an added headache for investors already fearful that trade wars and other geopolitical concerns would grind economic and corporate growth to a halt.

In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy's momentum.

"Wages have moved up for workers across a wide range of occupations, a welcome development".

While job creation has slowed slightly, over the past several months it has still easily outstripped the number needed to accommodate population growth. That has helped lift wages but hasn't provoked any serious signs of excessive inflation.

In its latest forecast released the same day, the Fed said the US gross domestic product will grow a real 2.3 percent in 2019, down 0.2 percentage point from an estimate in September, before easing to 2.0 percent in 2020.

The outlook for Europe, Japan and China is considerably more uncertain than the prospects for the US.