The US central bank moved to lift the federal funds rate, the technical tool the Fed can to tinker with through open market operations, from 2.25 percent to 2.50 percent. The move defies the wishes of some American politicians, among them US President Donald Trump, who called for the Fed to keep rates where they were.
The Federal Reserve lowered its forecast for future rate hikes. Wednesday’s rate hike marked the fourth increase of 2018, and the ninth such move since Q4 2015, when the central bank started to unwind the easy-money policy known as quantitative easing, which effectively brought rates to near zero and kept them low during the recovery from the 2008 recession.
The decision aligned with the expectations of traders and investors in the market: The Dow Jones Industrial had increased about 0.023 percent as of time of writing, while the S&P 500 had increased 1.11 percent. If the decision had been out of line with expectations, it’s more likely there would have been a more amplified movement in share prices one way or the other.
“The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term,” the Fed’s Open Market Committee (FOMC) said in a post-meeting statement.
Trump has sought to induce the Fed to keep interest rates low during his presidency. Lower rates make it cheaper to finance new projects, and new projects are generally associated with high rates of employment. Trump tweeted, “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake,” on Tuesday before the rate hike was announced.
“What to do? The right answer is to ignore the politics, inside and outside the Fed, and follow the signals that suggest a prudent pause in raising rates at this week’s Open Market Committee (FOMC) meeting,” the WSJ Editorial Board wrote in a column that ran in Tuesday’s paper.