Fed Raises Rates; Stays on Course for Two More Hikes

The U.S. Federal Reserve lifted its benchmark interest rate for the second time in three months. The 25-basis point rate hike was not a surprise and came about due to rising confidence that the economy is poised for more vigorous growth.

The rate hike means the target range is now 0.75 percent to 1 percent indicating that the Fed is on a path for additional increases throughout the year.

Government yields fell on the news and stocks moved higher, suggesting traders were looking for a more hawkish tone from the Fed. The combination of the Fed’s statement and the accompanying economic projections seems to have provided relief for stock traders who were looking for much more from the Fed.

Some investors had been operating under the fear that the central bank would do more to raise rates more frequently, but that doesn’t seem to be the case.

The “dot plot” changed very little from December, suggesting the Fed will stay the course outlined in December. This means we’re likely to see only two more rate hikes this year.

Fed officials also left expectations for economic growth little changed. The forecast for GDP gains in 2017 remains 2.1 percent, while 2018 was pushed up one-tenth to 2.1 percent.

Inflation expectations remained flat also with the Fed seeing a slight uptick in 2017 from 1.8 percent to 1.9 percent. The Fed also said the longer-term path was towards the benchmark 2.0 percent.

Overall, the feeling is the Fed will raise rates again in June then probably in December.