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<div class="gmail-story-top"><div class="gmail-story-header-left gmail-twoCol"><h1 class="gmail-title">Fed hikes interest rates, raises its economic outlook and drops 'accommodative' language</h1><div id="gmail-article_deck" class="gmail-content">
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<ul><li>The Federal Open Market Committee increases the fed funds rate 25 basis points to a range 2 percent to 2.25 percent.</li><li>The FOMC also projects one more hike before the end of the year and three in 2019.</li><li>Wednesday's statement drops language saying that "the stance of monetary policy remains accommodative."</li><li>Fed
officials collectively estimate gross domestic product to rise 3.1
percent in 2018, an upward revision from the 2.8 projection in June. The
forecast for 2019 also moved higher by 0.1 percentage points to 2.5
percent.</li></ul>
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<a rel="author" href="https://www.cnbc.com/jeff-cox/">Jeff Cox</a> | <span class="gmail-twitter-url"><a href="https://twitter.com/JeffCoxCNBCcom">@JeffCoxCNBCcom</a></span>
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Published 20 Hours Ago
Updated 18 Hours Ago
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How a Fed rate hike affects you
21 Hours Ago | 02:53 </div>
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<p>The <a href="https://www.cnbc.com/federal-reserve/">Federal Reserve</a>
hiked its benchmark interest rate a quarter point Wednesday, upped its
anticipation for economic growth this year and next, and provided a road
map of what lies ahead through 2021.</p>
<p>As widely anticipated, the policymaking
Federal Open Market Committee increased the fed funds rate 25 basis
points. That now takes the rate to a range of 2 percent to 2.25 percent,
where it last was in April 2008. This is the eighth increase since the
Fed began normalizing policy in December 2015.</p>
<p>The funds rate serves as
the baseline for multiple forms of consumer debt as well as savings
accounts and CD rates. The funds rate increase will be felt immediately
in the prime rate and increase credit card charges, but its impact in
other areas usually is more incremental.</p>
<p>Along with the rate increase, the FOMC continued to project one more hike before the end of the year and three in 2019.</p>
<p>The Fed had kept its
target rate anchored near zero from December 2008 until this hiking
cycle began as it sought to bring the economy out of the financial
crisis slump. Since then, the central bank has sought to normalize
policy through consistent but gradual increases.</p>
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Federal Reserve raises rates
19 Hours Ago | 02:11 </div>
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<p>The latest step in the normalization process, along
with the rate move, came with Wednesday's statement, in which the
committee dropped language saying that "the stance of monetary policy
remains accommodative."</p>
<p>Markets had been watching
to see whether that phrase would be excised after members had indicated
at the August meeting that it would be time soon to make that move.</p>
<p>Committee members also
indicated that it's likely the funds rate would remain for two years
above what they term the long-term "neutral" rate that is neither
restrictive nor stimulative.</p>
<p>Outside of the rate hike and drop of the phrase, the statement was verbatim from the August meeting.</p>
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<h4 class="gmail-subtitle">Economic outlook</h4>
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<p>Along with the move, committee members showed a more optimistic view of the U.S. economy.</p>
<p>In the latest installment
of their quarterly projections, FOMC officials collectively estimated
gross domestic product to rise 3.1 percent in 2018, an upward revision
from the 2.8 projection back in June.</p>
<p>The forecast for 2019 also moved higher by 0.1 percentage points to 2.5 percent. The estimate for 2020 remained at 2 percent.</p>
<p>Committee members for the
first time released their 2021 projections, which see the economy
growing at a 1.8 percent rate, aligning with the long-range forecast.</p>
<p>"The Fed is looking at an
economy that in 2021 is slowing, and this is the first time they've
said that," said Mark Cabana, head of U.S. short rate strategy at Bank
of America Merrill Lynch. "I think the confidence about how long the
economy is expected to stay strong is waning."</p>
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Fed removes 'accommodative' from policy language
19 Hours Ago | 04:17 </div>
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<p>The unemployment rate forecast ticked higher to 3.7 percent from June's estimate of 3.6 percent.</p>
<p>Forecasts for interest
rate moves ahead remain unchanged from June, though the expectations for
individual members, expressed through the so-called dot plot, showed a
greater range of estimates.</p>
<p>There was some upward
drift in the grid. A dot widely believed to belong to St. Louis Fed
President James Bullard, for instance, rose a quarter point for 2018.
Two more hawkish dots for 2020 that saw the range between 4 percent and
4.25 percent drifted lower, though the dots overall for that year
shifted higher.</p>
<p>The committee still
indicated another rate hike before the end of 2018 and likely three more
in 2019. There's one more increase factored in for 2020, bringing the
median range to 3.4 percent where it is expected to stay through 2021
before settling to 3 percent over the longer run, an increase from
June's projection of 2.9 percent.</p></div></div></div></div></div>
<br>-- <br><div dir="ltr" class="gmail_signature" data-smartmail="gmail_signature">=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+<br><br> Harold F. Schiffman<br><br>Professor Emeritus of <br> Dravidian Linguistics and Culture <br>Dept. of South Asia Studies <br>University of Pennsylvania<br>Philadelphia, PA 19104-6305<br><br>Phone: (215) 898-7475<br>Fax: (215) 573-2138 <br><br>Email: <a href="mailto:haroldfs@gmail.com" target="_blank">haroldfs@gmail.com</a><br><a href="http://ccat.sas.upenn.edu/~haroldfs/" target="_blank">http://ccat.sas.upenn.edu/~haroldfs/</a> <br><br>-------------------------------------------------</div></div>