'Adjusting To The Trump Era': Fed Raises Interest Rates By 25 Basis Points, Sees 3 Hikes In 2017

Following a two-day meeting, the U.S. Federal Reserve announced Wednesday it has decided to raise its benchmark short-term interest rate by 0.25 percent, effective Thursday, after one year with no changes. The federal-funds rate will now stand between 0.50 and 0.75 percent.

The decision was unanimous, as Federal Open Market Committee officials cited “realized and expected labor market conditions and inflation.”

The document indicated that Fed officials see the economic outlook ameliorating, and now expect to boost interest rates by 0.75 percent next year, through three separate 0.25 percent hikes, reaching 1.4 percent by the end of the year. This means the pace of hikes in 2017 will be faster than originally anticipated.

The Fed now envisions a rate of 2.1 percent by the end of 2018, and a 2.9 percent rate by year-end 2019.

Moreover, the group updated its economic growth projections for 2016 and 2016, boosting them slightly, to 1.9 percent and 2.1 percent, respectively. The inflation estimate was also raised, from 1.3 percent in September, to 1.5 percent in the current report. Nonetheless, the figure still remains below target.

It's expected that inflation hits 1.9 percent in 2017, reaching the target of 2 percent by 2018.

After the announcement, RSM Chief Economist Joe Brusuelas commented, “[The] Fed took [the] first tentative steps of adjusting policy to the Trump era by signaling a quicker pace of rate hikes in 2017. While, the long-term rate forecast of 3 percent implies a continuation of secular stagflation, it will be interesting to observe policy going forward considering the coming of expansionary fiscal policy and general reflation.”