The benchmark interest rate was expectedly increased by one-quarter of a percentage point by the Federal Reserve on Wednesday, with more signs that the rates will be raised once more in December. After the conclusion of its two-day meeting where the monetary policy is decided, the Federal Open Market Committee continually pronounced the economic conditions as strong. According to the released statement, the economic activity has been increasing at a stable rate with a strong outlook on factors such as the growth of household spending, business investment, as well as job growth.
The benchmark rate was moved to a range between 2 and 2.25 per cent by the Fed Reserve, this would be the eighth time the rate will be increased since the occurrence of the 2008 financial crisis, and the third increment in this year, the decision was a unanimous decision.
However, for the first time in the last few years, the monetary policy was not described as accommodative by the Fed as it was suggested that its benchmark interest rate is improving to a level that the Fed consider as neutral which means the monetary policy is not motivating or blocking economic growth.
This does not mean that Fed will no longer be increasing rates; the officials of the Fed Reserve cautioned that a tax cut in the face of robust economic expansion is unnecessary. On the contrary, this warning was ignored by President Trump and the Congress as the taxes were reduced and spending was significantly increased. The outcome of the decision is a short-term improvement in economic growth, which has strengthened the conviction of Fed that there is a need to continue with the process of increasing interest rates to ensure the inflation growth is controlled; the inflation is growing at a rate of two per cent yearly pace.
The members of the policy-making committee also forecasted that the central bank would increase its rates again for at least five times by the end of 2020 in a round of predictions made available to the public on Wednesday.
On the other hand, President Trump has expressed dissatisfaction regarding the increasing rates in his interview with CNBC in July. In his words, he said he does not like seeing increased rates despite the enormous work to ensure the economy is in excellent shape. There are some signs which show that the Fed is trying to constrain the growth of the economy. It is noticed that the rates offered by consumers have increased more at a slow pace than the benchmark rate. For instance, the average rate on a 30-year mortgage loan reached 4.55 percent in August, from a previous point of 3.96 percent in December 2015 based on the data from Freddie Mac. This increase is lower than a third of the rise in the rate of Fed over the same period.
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