The Federal Reserve has increased its interest rate by 25bp. The fed fund rate will be in a corridor going from 0.75 to 1%. Previously and since last December Fed’s meeting the corridor was 0.5 to 0.75%.
The US central bank will continue to increase its rate and expects two other increases in 2017 to 1.375% (mid-corridor). Three hikes are expected for 2018 to 2.125% and for 2019 the rate will converge to 3% (which is also the Fed’s long term target). For 2017, there is no acceleration when the profile is compared to what was expected in December.
The Fed perceives the US economy as robust. Yellen said that clearly when she answered a question during the press conference. The US central bank said that its two objectives are almost attained. Growth is robust and the inflation rate is close to 2%. That’s a good reason for the central bank to increase its rate. It’s a new step for normalisation.
Growth and inflation forecasts are unchanged when compared to December. GDP growth is expected at 2.1 in 2017 and 2018 (it was 2% for 2018 in December). The inflation rate is at 1.9% and 2% as is the core inflation rate. These are the same numbers than in December. Continue reading