The reset of the flow and direction of global capital will proceed further apace after the Federal Reserve lifted interest US rates by a quarter point and signalled that two more increases are likely in 2018.
The rate hike came as policymakers in Washington gave a bullish assessment of the US economy amid accelerating growth and rapid job creation in the world’s largest economy.
The Federal Open Market Committee raised the target range for the federal funds rate from 1.75 to 2 per cent, in the seventh increase of the current cycle and the second this year. Interest-rate forecasts released by Fed policymakers pointed to a total of four rate rises in 2018, followed by another three in 2019. In a statement, the central bank dropped previous crisis-era assurances that it will keep rates below their longer-run norms.
“The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2 per cent objective over the medium term,” the Fed said, adding that risks to the outlook are roughly balanced.
The US stock market dipped 0.2 per cent on the news that Fed officials planned to increase interest rates another two times this year — on top of the two that came in March and on Wednesday — while the 10-year Treasury yield jumped 3 basis points to 2.98 per cent.
The dollar climbed 0.4 per cent against the euro to trade at $1.174. The Fed’s statement suggested the central bank is getting increasingly confident about inflation, as policymakers dropped earlier statements that they are carefully monitoring price readings.
