Citing improving labor market conditions and inflation nearing 2%, the Federal Open Market Committee (FOMC) on Wednesday voted unanimously to raise the Fed Funds rate from 1.5%-1.75% – the highest since it’s been since 2008.
Currently, the FOMC is leaning toward raising rates two more times this year and at least once in 2019.
However, the “dot plot” graphic for the most recent meeting shows that six of the 15 board members anticipate four hikes this year – and one believes five hikes will be necessary. This – plus the Fed’s upwardly revised economic projections – raises the possibility of a fourth hike in 2018.
The committee is now forecasting GDP growth of 2.7% for this year, up from 2.5% and GDP growth of 2.4% in 2019, up from 2.1%.
Further, the committee is anticipating the rate of inflation to top-out at 1.9% this year, then rise to 2% in 2019 and 2.1% in 2020.
The unanimous vote was the first under new Fed Chairman Jerome Powell and affirmed that Powell will stick to the path set by his predecessor, Janet Yellen, of gradually scaling-back economic stimulus.
“Today’s decision to raise the federal funds rate is another step in the process of gradually scaling back monetary policy accommodation as the economic expansion continues,” Powell said in his prepared comments before the press on Wednesday. “This gradual process has been under way for more than two years and it has served – and should continue to serve – the economy well.”
Powell added that the Fed’s program for liquidating its assets and reducing its balance sheet – also part of its strategy of easing – “is proceeding smoothly.”
“Barring a very significant and unexpected weakening in the outlook, we do not intend to alter this program,” he said. “As we’ve said, changing the target range for the federal funds rate is our primary means of adjusting the stance of monetary policy. As always, the committee would be prepared to use its full range of tools if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.”
Although the anticipated Fed hikes are expected to have a muted impact on fixed-rate mortgages, other loan products, including home equity lines of credit and adjustable-rate mortgages, could see significant rate increases.