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Fed Raises Interest Rates, Hints at Three Hikes in 2019

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Sep. 27 2018, Published 8:09 a.m. ET

Fed hikes interest rate 25 basis points, as expected

As widely expected, the Federal Reserve increased the interest rate (TLT) yesterday by 25 basis points to 2%–2.25%. It’s the third rate hike this year and the eighth since the Fed started raising rates in December 2015. It began its quantitative easing process and ended its near-zero interest rate policy after the Great Recession ended to encourage more borrowing and boost the economy.

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Future outlook largely unchanged

The Fed kept its future policy outlook largely unchanged. It still foresees a rate hike in December, three more in 2019, and one in 2020. The committee removed its accommodative language from its policy statement. Fed chair Jerome Powell, however, mentioned that removing “accommodative” from the language “does not signal any change” in the path of the monetary policy.

Impact on the markets

Gold prices (GLD) fell after news of the rate hike and the outlook. Metal prices rose in Asian trading on Wednesday since the hike generated limited gains in the US dollar (UUP).

President Donald Trump said he’s not happy with the Fed’s decision to hike interest rates. Previously, he criticized the Fed for raising rates. He said he was worried about the impact of higher interest rates on the economy. In his opinion, lower rates could help create jobs and pay down the federal debt.

As we’ll see in the next part of this series, the US equity markets (SPY) (DIA) initially reacted positively to the rate hike and then turned negative following the Fed chair’s speech.

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