Federal Reserve officials raised interest rates for a third time this year and reaffirmed their outlook for further gradual hikes well into 2019, risking fresh criticism from President Donald Trump.
The quarter-point increase boosted the benchmark federal funds rate to a target range of 2 percent to 2.25 percent. The move reflected an upbeat assessment of the economy that was identical to the central bank’s last policy statement eight weeks ago, despite concerns over Trump’s escalating trade war.
Growth and job gains have been “strong” and inflation remains near the central bank’s 2 percent target, the Federal Open Market Committee said in its statement Wednesday following a two-day meeting in Washington.
Barring a negative surprise in the economy, updated “ dot plot” forecasts made a December rate hike almost certain, as the number of FOMC officials expecting another increase by year-end grew to a bigger majority of 12, from eight in the previous round of projections in June.
In the statement’s only change from the previous one issued Aug. 1, the committee dropped its long-standing description of monetary policy as “accommodative.” That’s an acknowledgment rates have moved closer to the neutral level which neither boosts nor restrains the economy.
The tweak in language led investors to sell the dollar and buy Treasuries on the assumption it meant the Fed would be less aggressive in the future. The Bloomberg dollar spot index fell as much as 0.3 percent to a session low and the yield on 10-year Treasuries dropped to as low as 3.061 percent from around 3.08 percent before the decision.
Fed Chairman Jerome Powell and his colleagues are trying to pull off a feat the central bank has accomplished only once in its 104-year history: Engineer a soft landing of the economy by raising rates just enough to prevent overheating, but not so much that they trigger a recession.
During a press conference after the decision, Powell said the removal of the sentence about policy accommodation doesn’t signal a change in the Fed’s path for gradual tightening guided by incoming economic data. Even after today’s hike, policy remains accommodative, he told reporters. “This is a pretty good moment for the U.S. economy,” he said.
While calling the economy strong and financial vulnerabilities moderate, he also said the central bank is hearing a “rising chorus” of concern about tariffs and the U.S.’s turn toward protectionist trade policies. Asked about the pressure from Trump to keep rates low, Powell said the Fed is focused on its mission to keep the economy healthy and doesn’t consider politics in the process.
Eighth Hike