What a Federal Reserve rate hike means for you

What a Federal Reserve rate hike means for you

What a Federal Reserve rate hike means for you

Federal Reserve trudges interest rate to top most level as fiscal policy has become more invigorating.

Yesterday, on Wednesday, March 21, 2018, "the Fed", as it's colloquially called, immediately raised interest rates by one-quarter percent, or 0.25%, to a new "band" - in simple terms, just a level between which interest rates fall - of 1.5% to 1.75%. Any widespread default on debt today would be reminiscent of the 2004-2006 period when the Fed's raising of rates to tackle inflation led to a mass default on USA mortgage debt.

While the Fed is "very alert" to any increases that could result from the very low unemployment rate, which normally would be expected to drive wage increases, "it's not something we observe at the present". The Fed expects the U.S. unemployment rate, now at 4.1 per cent, to come down to 3.8 per cent in 2018 and 3.6 per cent in 2019, both revised higher from the December projection of 3.9 per cent in 2018 and 2019.

In January, the Fed left the key rate in a target range of 1.25% to 1.5% after the final meeting of the central bank's monetary policy committee under departing chairwoman Janet Yellen.

The Fed hasn't hiked rates four times in a year since 2006. In addition, the already historically low unemployment rate is seen falling even further, ending next year at a stunning 3.6 percent, according to the quarterly Summary of Economic Projections. The Fed expects inflation, which has run below its 2 percent target for six years, to stay at 1.9 percent this year and then rise to 2 percent in 2019.

In his first press conference as new chairman, Jerome Powell said the Fed is trying to stake out the "middle ground: Raising rates enough to keep inflation at bay without causing harm to the economy".

"Perhaps most disturbing for the market is moving up the long-run projections of the Fed funds rate, as that will cast doubt as to where rates will eventually peak if the economy proceeds along the path the Fed has projected". Though economic growth has been revised higher, there was no change in the inflation projection.

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Credit card debt is at a record high in the US, totalling more than $1 trillion in 2017.

In the future, there is a higher probability for the Fed to raise the benchmark rate to 2.25 per cent as targeted, as markets had started to accept the rate increases, Jitpol said, adding that he expected the baht and other Asian currencies would not be affected too much.

There are also other changes in the Fed's statement.

The benchmark federal funds rate has been hiked to 1.50-1.75% from the 1.25-1.50% raised in December 2017.

Central bankers see growth picking up this year and next, with GDP gaining 2.7 percent this year and 2.4 percent next year.

Powell, a Republican with a reputation for bipartisan work in Washington, was careful not to criticize President Donald Trump or congressional leaders, but he did say the tax cuts are unlikely to lead to the 3 percent growth the White House is touting. It is, after all, no secret that private corporations attracted by ultra-low interest rates had heavily loaded up on debt over the last decade.

The baht would move in line with the economic conditions of Thailand and its trading partners, he said.

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