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A Strengthening US Economy and a Cautious Fed

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The Fed delivers first rate hike of 2018

In the first policy meeting under new Fed chair Jerome Powell, the FOMC (Federal Open Market Committee) increased the interest rate by 0.25%. The hike came at the end of the two-day meeting that concluded on Wednesday, March 21, 2018. It increased the target range of the federal funds rate to 1.5%–1.75%, leaving the monetary policy stance accommodative in its effort to support a strong labor market and for inflation (TIP) to reach a sustained level of 2%. The decision to increase the US interest rate was unanimous with an 8–0 vote.

 

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Key points highlighted in the statement

The central theme of the March meeting was to find a middle ground for the monetary policy. Although the Fed has acknowledged that the economic outlook has strengthened in recent months, Powell, in his post-meeting press conference, said they were trying to take a middle ground. He has also indicated that there were no definitive signs that the US economy was facing a risk of accelerated inflation (VTIP). The Fed has increased the longer-term neutral rate, which is a positive sign for economic expectations. A neutral rate is classified as a level of interest rate at which the economy is sustained at an acceptable level without any help from a monetary policy.

Series overview

In this series, we’ll be analyzing the March FOMC statement in detail. We’ll cover the FOMC members’ views on inflation (SCHP), economic growth, risks to the economy, and how the US equity, US dollar (UUP), and the US bond (BND) markets reacted to the FOMC statement.

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