While you were sleeping: Fed sees three hikes in 2018

Thursday 14th December 2017

Wall Street rose as the Federal Reserve raised its key interest rate for the third time this year, and held to its forecast for three rate hikes next year.

The Federal Open Market Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent “in view of realised and expected labour market conditions and inflation,” it said in a statement.

Charles Evans and Neel Kashkari voted against the hike as they preferred at this meeting to maintain the existing target range for the federal funds rate, the FOMC said.

While the Fed upgraded its outlook for economic growth next year, it held to its forecast for three rate increases in 2018.

“Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further,” the Fed said. “Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.”

“Inflation on a 12‑month basis is expected to remain somewhat below 2 percent in the near term but to stabilise around the Committee's 2 percent objective over the medium term,” according to the Fed.

In 2.06pm trading in New York, the Dow Jones Industrial Average rose 0.5 percent, while the Nasdaq Composite Index added 0.4 percent. In 1.50pm trading, the Standard & Poor’s 500 Index increased 0.1 percent.

Earlier in the day, the Dow rose to a record 24,666.02, while the S&P 500 advanced to an all-time high 2,671.88, amid reports that Senate and House Republicans reached a deal on the tax bill.

“We don’t know the details of the tax plan but we know that there will be one. The Fed will feel very comfortable given the good growth, stable inflation. Tax code stimulus should provide the Fed additional confidence in 2018,” Stephen Wood, chief market strategist at Russell Investments in New York, told Reuters.

The Dow moved higher as gains in shares of Caterpillar and those of Nike, recently up 3.6 percent and 1.9 percent respectively, outweighed slides in shares of IBM and those of American Express, recently down 1.4 percent and 0.8 percent respectively.

A Labour Department report showed its so-called core consumer price index, which excludes food and fuel, rose 0.1 percent in November from the prior month and climbed 1.7 percent from a year earlier. That was less than economists had predicted.

“Whatever jitters were aroused by [Tuesday’s] PPI should be allayed by the CPI this morning, where core price pressures remain elusive,” Christopher Low, chief economist at FTN Financial, wrote in an email before the Fed's announcement, Bloomberg reported. “CPI inflation tends to run 50 basis points or so above the Fed’s target PCE inflation rate, so today’s data suggests the Fed should be cautious in raising rates if inflation is going to be sustained at 2 percent.”

In Europe, the Stoxx 600 Index ended the day with a 0.2 percent decline from the previous close. The UK’s FTSE 100 Index slipped 0.1 percent, Germany’s DAX Index fell 0.4 percent, while France’s CAC 40 Index retreated 0.5 percent.

(BusinessDesk)

Comments from our readers

No comments yet