Economic forecasts tweaked
The FOMC (Federal Open Market Committee) decided to raise the benchmark interest rate by 0.25% yesterday. FOMC officials also mentioned that they expect short-term interest rate increases to be more gradual than what was expected three months ago. The FOMC also made slight changes to its forecasts for the economy. In 2016, it expects the economy to grow by 2.4%, up from the 2.3% forecasted during the September FOMC meeting. For 2017, the economic growth forecast remains constant at 2.2%.
Officials expect inflation to rise slowly. The median target for inflation in 2016 stands at 1.6%, lower than the 1.7% estimated in September. Officials expect inflation to meet the target of 2% by 2018.
Policymakers are optimistic about the labor market. The median expected unemployment rate for 2016 is 4.7%, lower than the 4.8% estimated in the September meeting and the 5% reported in November.
Equity markets rose after the rate hike was announced. The broad-based SPDR S&P 500 ETF (SPY) rose 1.4%, and the Financial Select Sector SPDR Fund (XLF) rose 1.8%. Shares of large banks like J.P. Morgan (JPM), Citigroup (C), and Wells Fargo (WFC) also rose following the announcement.