‘Plain English’ Powell Praises U.S. Economy After Rate Hike

Stephen Stanley chief economist at Amherst Pierpont and Bob Browne Northern Trust CIO discuss the

The federal government drastically upgraded its forecasted 2018 economic outlook Wednesday, saying the U.S. economy was rising at a "solid" rate; an increase from its previous prediction of "moderate" growth.

He also announced that starting in January he'd take questions from the media after every meeting, though he cautioned that "having twice as many press conferences does not signal anything".

In the U.S., Fed officials are setting policy for an economy that's being boosted by $1.5 trillion in tax cuts and a $300 billion increase in federal spending, while unemployment has fallen to levels that match the lowest since 1969. But that exorbitant rate is likely to go up to 15.57% within two billing cycles, CompareCards says, as lenders pass along the higher rates to clients. Fed Chairman Jerome Powell said at a news conference that the USA economy has strengthened considerably since the 2007-08 recession and is in "great shape".

Fed officials had been split about whether to raise rates three times this year or four.

The Fed's pace of rate hikes for the rest of the year could end up reflecting a tug of war between a sturdy economy and the risks to growth, including from a potential trade war that could break out between the United States and such key trading partners as China, the European Union, Canada and Mexico.

The central bank raised its key short-term rate today by a modest quarter-point to a still-low range of 1.75 percent to 2 percent.

US growth is also getting a boost from $1.5 trillion in tax cuts and a $300 billion increase in federal spending, with inflation at the central bank's 2 per cent target for two months. The Fed's new forecast showed inflation inching up only slightly over the next 2 1/2 years. Eastern time news conference.

So-called core inflation - which excludes volatile items like energy and housing - is now 2.2 percent, around the level the Fed is looking for. Inflation by the Fed's preferred gauge would hit its 2 percent target this year and edge up to 2.1 percent over the next two years.

Here's the Fed's full statement: "Information received since the Federal Open Market Committee met in May indicates that the labour market has continued to strengthen and that economic activity has been rising at a solid rate".

"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability". Risks to the economic outlook appear roughly balanced.

That's a welcome change from recent years when Fed policymakers fretted about an inflation rate well below target. The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to 2 per cent inflation.

Economists said the Fed left little doubt that it's prepared to increase the pace of its credit tightening to guard against high inflation later on.

"Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams".

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