U.S.: Fed hikes, with more coming; sees stronger economy

4 min

As expected the Federal Reserve raised the Fed Funds rate by 25bp to a range of 2.0%-2.25%, and strongly implied that it would hike again in December of this year and three times in 2019, although Euler Hermes anticipates only two hikes. Importantly, the accompanying statement dropped the language “The stance of monetary policy remains accommodative…” suggesting that interest rates would no longer be so low as to stimulate the economy. The Fed sharply upgraded its 2018 GDP forecast from +2.8% to +3.1%. The increase in the Fed Funds rate has significantly driven up rates for mortgages, credit cards, and other types of loans, and has also flattened the yield curve. However the curve remains positive, strongly suggesting that a recession in 2019 is unlikely. There was no mention in the statement of concerns over trade, but Chairman Powell did say in the press conference that “We've been hearing a rising chorus of concerns from businesses all over the country about disruption of supply chains, materials cost increases… widespread tariffs… that's going to be bad for the United States economy….  It's a concern. It's a risk. You could see prices moving up…”.