Traders see fourth Fed interest rate hike this year

Federal Reserve Chairman Jerome Powell speaks following the Federal Open Market Committee meeting in Washington. Investors are eagerly awaiting the updated economic forecasts the Fed will issue when its meeting

The median average of the central bank's updated forecasts - also referred to as the "dot plots" - called for interest rates to end the year around at 2.4%, up from March's projection of 2.1%; The forecasts suggest the Fed will raise interest rates two more times this year.

(Kitco News) - Gold prices are holding steady just below the psychological barrier of $1,300 an ounce after the Federal Reserve suggested that it will hike interest rates more aggressively this year and the next as the USA economy continues to grow.

"The economy is in great shape", Powell said.

"I think we are far enough away now though that the risks are kind of balanced", he said.

The combined policy of the Fed, the European Central Bank, the Bank of Japan, and the Bank of England (G4 bloc) will be contractionary within months, perhaps dangerously so if the monetarists are right.

Fed officials project gross domestic product increasing 2.8 percent this year, up from an earlier projection of 2.7 percent.

The increase in the target range of the benchmark federal funds rate to 1.75 percent to 2 percent had been widely expected, but the slightly steeper pace of rate hikes shown in the dot plot spooked some investors. The projections show inflation rising 2.1% for the next three years.

Press conference after every meeting would give the Fed more room to make decisions as the economy warrants, and to be less choreographed.

While a few items remain on the US central bank's wish list, such as bigger gains in wages and productivity, the main goals of stable prices and full employment are effectively met. Powell said incentives in the Republican tax cut legislation could boost investment and lead to higher productivity although the timing was uncertain. In the longer run, it maintained the forecast for 1.8% growth.


Fed says economic activity rising at a solid rate, previously described growth as moderate. "He is someone who thinks the USA economy has a lot of room at the margin".

"In view of realized and expected labor market conditions and inflation, the Committee made a decision to raise the target range for the federal funds rate to 1-3/4 to 2 percent", the Fed said in a statement.

Policy makers kept their hiking path at three hikes for 2019 while trimming the 2020 outlook to one increase.

After nine years of steady if uneven recovery, the United States is now growing at a pace topping 4 percent, unemployment is as low as it has been this century, and inflation has safely edged up toward an official target.

Powell said there were no signs that trade tensions were having a big impact on growth and that the somewhat tighter policy path in 2018 shouldn't deter continued strong job creation.

Updating their quarterly forecasts, officials projected the policy rate at 3.1 per cent at the end of 2019, according to their median estimate - compared with 2.9 per cent seen in March - and 3.4 per cent in 2020, unchanged from the prior forecast.

"'You have fiscal policy pushing on the gas, and downside risks from trade disputes so they are continuing their gradual approach", said Julia Coronado, president of Macropolicy Perspectives LLC in NY.

Traders correctly foresaw the June rate hike, the central bank's second this year, and had been quite confident of a rate hike in September.

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