The United States central bank, the Federal Reserve, announced a one-point increase in the benchmark interest rate on Wednesday. However, the Fed lowered its forecast for a rate hike next year to double.
Launching from CNBC on Thursday (12/20/2018), as the market had predicted, the Fed raised its benchmark interest rate to 2.25% to 2.50%. This is the fourth interest rate increase in 2018 and ninth since the US began normalizing policies in December 2015.
However, in the announcement, the Fed lowered the projected interest rate increase next year. If initially around three times then in 2019, the Fed said it would raise interest rates twice. This signaled the cycle of tightening US monetary policy was nearing an end in facing financial market volatility and slowing global economic growth.
Quoting Reuters, Fed Chief Jerome Powell said the reason for reducing the projected rate increase was twice, because the US economy had grown at a strong level and the job market continued to improve. And next year’s increase will be carried out at a gradual level.
In addition, the Federal Open Market Committee (FOMC) also lowered the outlook for long-term funding levels, from 3% in September’s estimate to 2.8% in December. For estimates in 2019, it fell to 2.9% from 3.1%. And 2020 and 2021 fell to 3.1% from the previous 3.4%.
This level of fund problem is related to a large portion of consumer debt, especially credit cards and adjusted interest rate loans. The problem of the high level of long-term funds often gets criticism from US President Donald Trump.
In addition to rising interest rates, the Fed also estimates that America’s Gross Domestic Product (GDP) will grow 2.3% in 2019 and 2.0% in 2020. This figure is weaker than the Fed forecast in September.
The unemployment rate which is currently at 3.7%, the lowest level in 49 years, is expected to fall to 3.5% next year, unchanged from the previous estimate. And the unemployment rate in 2020 is expected to rise again to 3.6% and in 2021 it is estimated to be 3.8%.
This year’s inflation which reaches the target of 2%, is expected to drop to 1.9% in the year tomorrow. This figure is lower than the Fed’s estimate in the past three months at the level of 2.0%.