· The Federal Reserve on Wednesday raised its benchmark interest rate a quarter-point but lowered its projections for future hikes.
As markets had expected, the central bank took the target range for its benchmark funds rate to 2.25 percent to 2.5 percent. The move marked the fourth increase this year and the ninth since it began normalizing rates in December 2015. It came despite President Donald Trump’s tweets against rate hikes. On Monday, he said “it is incredible” that “the Fed is even considering yet another interest rate hike.”
Officials, though, now project two hikes next year, which is a reduction but still ahead of current market pricing of no additional moves next year.
The language in the post-meeting statement was not entirely dovish, or easy on its outlook for rates. The committee continued to include a statement that more rate hikes would be appropriate, though it did soften the tone a bit.
The FOMC also lowered its outlook for the long-run funds rate, from 3 percent in the September forecast to 2.8 percent this month. The 2019 estimate declined to 2.9 percent from 3.1 percent and both 2020 and 2021 dropped to 3.1 percent from 3.4 percent.
GDP is now seen as rising 3 percent for the full year of 2018, down one-tenth of a percentage point from September, and 2.3 percent for 2019, a 0.2 percent point reduction. However, officials took up their long-run estimates, to 1.9 percent from 1.8 percent in September.
Overall, though, Fed officials expressed little worry about economic growth. GDP gains have averaged 3.3 percent per quarter this year, and the Atlanta Fed is forecasting a 2.9 percent increase in the fourth quarter.
Officials continued to describe economic growth as “rising at a strong rate” and left descriptions of other parts of economic activity unchanged as well.
The summary of economic projections did note that headline inflation is expected to grow less quickly than the September estimate, slipping to 1.9 percent from 2.1 percent in 2018 and to 1.9 percent from 2 percent in 2019. The longer-run expectation remains 2 percent.
· The dollar came off its lows but remained weaker overall on Wednesday after the Federal Reserve’s guidance on its tightening cycle was less dovish than expected, even though it forecast fewer interest rate hikes than it had in September.
The dollar index, which measures the greenback against six major currencies, was 0.2 percent lower at 96.940.
In mid-afternoon trading, the dollar was down 0.2 percent against the yen at 112.36 yen, while the euro was up 0.2 percent $1.1382.
· “We predict the dollar will swing as it closes the year, but will be on a downward trend if indeed the Fed admits more caution and monitoring of lagging indicators is needed before further tightening,” Analysis noted.
· President Donald Trump has begun what will be a total withdrawal of U.S. troops from Syria, declaring on Wednesday they have succeeded in their mission to defeat Islamic State and were no longer needed in the country.
A decision to pull out completely, confirmed by U.S. officials and expected in the coming months, coincides with the roughly 2,000 U.S. troops finishing up a campaign to retake territory once held by Islamic State militants.
But it could leave the United States with few options to prevent a resurgence of Islamic State. It could also undercut U.S. leverage in the region and undermine diplomatic efforts to end the Syrian civil war, which is now in its eighth year.
· The United States imposed fresh Russia-related sanctions on Wednesday, expanding a blacklist of individuals allegedly involved in a Kremlin-backed campaign to meddle with the 2016 U.S. presidential election, among other misdeeds.
The fresh sanctions targeted 15 members of a Russian military intelligence service and four entities involved in the alleged election interference, the hacking of the World Anti-Doping Agency and other “malign activities” around the world, the Treasury said in a statement on its website.
· The Bank of Japan is set to maintain its ultra-loose monetary policy on Thursday and warn of heightening risks to the economy, as fears of slowing global growth jolt markets and narrow the window of opportunity to dial back crisis-mode stimulus.
The nine-member board may also discuss recent declines in Japan’s long-term interest rates, as 10-year yields threaten to slide below zero and undermine the BOJ’s efforts to steepen the yield curve to give financial institutions breathing space.
· Oil prices rose on Wednesday, recovering somewhat from a sharp sell-off during the previous session, after U.S. data showed strong demand for refined products.
Sentiment remains negative, however, as investors grapple with weakening demand and worries about oversupply.
Benchmark Brent crude oil settled 98 cents, or 1.7 percent, higher at $57.24 a barrel. The front-month U.S. light crude contract, which expires on Wednesday, closed 96 cents higher at $47.20 a barrel, a 2.1 percent gain. The second-month contract was up $1.10 a barrel to $47.70 around the settlement.
Reference: CNBC, Reuters
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