The US Federal Reserve has once again raised the short-term interest rates in a move confirmed on Wednesday. This is now the 8th time since 2015 that the Fed raises the rates after years of historical lows. The Fed held a two-day meeting for deliberations before announcing a quarter-percentage increase in its benchmark rate. The rate rose from 2% to 2.25%. The benchmark rate is used to set mortgages, credit cards, and other loan rates. The raise means that consumers getting financing through traditional entities will need to pay extra in interest fees.
In 2018 alone the Fed has raised the interest rates three times while the US unemployment figures have hit an all-time low. Recent figures show that the US economy has added at least 201,000 jobs for the 95th in a row. Unemployment also remains steady at 3.9%. The recent rate hike is also pushing the benchmark figure above the 2% mark for the first time since 2008. This was during the economic recession when interventionist government policies cut rates to zero in its efforts to reverse the economic downturn.
It looks like this won’t be the last time that the rates will rise. A statement released by the Federal Reserve after the Wednesday hike revealed that the monetary policy committee is expecting “further gradual increases” in the benchmark rate in the near future. The statement also noted that these increases will be consistent with sustained economic expansion, strong labor markets, and steady inflation. The Fed added that while there were some serious risks to the current economic outlook, there’s confidence that the economy will navigate through without issues.
President Donald Trump has expressed his concerns in the past over the increasing rates. At one point Trump said during an interview with Reuters that he wasn’t “thrilled at all” with the interest rate hikes. The statement raised eyebrows among policymakers and economists alike who argued that any attempt to undermine the independence of the Federal Reserve could be catastrophic. Traditionally, the Fed has worked independently without any political pressure. Trump’s comments during the Reuters interview were also opposite to common tradition in which sitting presidents tend to steer clear of any direct criticism to the Central Bank.
Despite this, the Fed chair Jerome Powell said that the central bank remains independent in the execution of its duties. During a press conference on Wednesday, Powell made it clear that the monetary committee understands the importance of its role and added that the members will remain focused on fulfilling their mission as effectively as possible. Powell assured the country that the Federal Reserve doesn’t consider political factors in its work.
On the looming trade war between the US and China, Powell observed that even though a number of concerns have been raised, at the moment it’s very difficult to tell whether these escalating trade tensions will have any effect on the outlook of the economy. Earlier in the year analysts were expecting the Fed to raise rates at least four times in 2018, and it seems that the central bank is well on course to meet these expectations and even go beyond.
