Fed raises rates but cuts 2019 forecast

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Reuters

The Federal Reserve has raised interest rates again – but future increases may come at a slower pace.

Officials at the US central bank voted to lift the Fed’s key interest rate by 0.25%, to a target range of 2.25%-2.5%.

But estimates released on Wednesday show most members expect two rate increases in 2019 – not three, as previously forecast.

The shift follows a downturn in US financial markets and concerns about slowing growth in the US and abroad.

Officials now expect economic growth of 2.3% in 2019, down from the 2.5% they anticipated in September.

Members also said they expect inflation to hover around 1.9% next year, compared to a 2% forecast in September.

Greg McBride, chief financial analyst at Bankrate.com, a personal finance website, said: “The Fed downshifted their projections of 2019 economic growth, inflation, and interest rate hikes – not in a big way but enough to remove the urgency of repeated rate hikes.”

The Fed has been gradually raising interest rates since 2015, moving the US away from the ultra-low rates put in place during the financial crisis to spur economic activity.

Wednesday’s decision, which was widely expected, marks the ninth increase since 2015 and the fourth this year.

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The moves have made borrowing more expensive. With economic growth expected to slow, some worry that further increases risk stifling economic activity.

US President Donald Trump has been among the loudest voices calling on the Fed to hold off on further increases.

In a statement, the Fed said increases to its benchmark rate would help the US economy sustain its expansion, keep the unemployment rate low and inflation near 2%.

However, the Fed qualified its position a bit, noting that “some” further gradual increases would be justified.

Members also lowered their forecast for interest rates in 2020 and 2021. On average, they now expect the benchmark federal funds rate to hit about 3.1%, down from the 3.4% forecasted in September.