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Federal Reserve Raises Key Interest Rate by 25 Points as Expected Despite Trump’s Pleas to Leave Unchanged

2:09 PM, Dec 19, 2018 — The Federal Reserve raised its key interest rate by 25 basis points, as expected, raising the cost of borrowing for home buyers and companies looking to expand.

The Federal Open Market Committee raised its federal funds rate to a target of 2.25% to 2.5%, it said in a statement on Wednesday. The rate increase was widely expected, though the odds of a hike on the CME Group’s FedWatch tool decreased from 78% early in the day to 72% about 15 minutes before the announcement was made.

Committee members said realized and expected labor market and inflation conditions led to the rate increase. The hike marks the fourth rate bump this year. In September, the last time the FOMC raised rates, members said sustained economic growth, strong labor markets and inflation near their 2% medium-term objective would lead to further rate increases.

In a slight change to its wording, the FOMC said in Wednesday’s report risks are roughly balanced, but that it would “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”

The Fed was more dovish on its outlook than it was three months ago. Policy makers lowered their views on the projected appropriate path for 2019 to a median of 2.9% from 3.1% in September. That implies just two hikes of 25 basis points for next year, which would put the target range at 2.75% to 3%. The longer-run projection was also lowered to a median of 2.8% from 3% seen in September.

The FOMC also lowered views on economic growth, projecting 2.3% in 2019 from a September view of 2.5%, while keeping 2020 expansion unchanged at 2% and 2021 at 1.8%. The projection for this year was reduced to 3% growth from 3.1% seen in the last summary.

Jobless claims last week fell to near the lowest since 1969, and unemployment in November also close to a 49-year low at 3.7%, according to the Labor Department, near what economists call “full employment” levels. Wage growth is up about 3% year-over-year, which is good news for the overall economy.

Still, there have been some recent economic hiccups that some believe are warning signs of a recession. Non-farm payrolls increased by 155,000 in November, missing expectations for a jump of 198,000, while the housing market has suffered a slowdown as rising interest rates and prices keep would-be buyers on the sidelines. The S&P 500 has dropped about 13% since the start of October.

President Trump has been adamantly against another increase, urging the Fed to not make “another mistake” by raising rates. The Wall Street Journal in an editorial also said committee members should take a breather and leave rates unchanged. Analysts, however, didn’t expect the Fed to bow to political pressure.

The FOMC reiterated its stance that future adjustments will be based on measures of labor market conditions, indicators of inflation pressure and other economic data.

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