As widely expected, the Federal
Reserve raised short-term interest rates for the first time this year.
Fed Chair Janet Yellen was
upbeat about the progress of the economy, although the consensus among
Fed policymakers is that the economy will not grow over the next two years at
an above 3 percent pace hoped for by the Trump administration.
Yellen told reporters that the
committee is still forecasting growth in the gross-domestic product (GDP) at
around 2 percent through 2019. She noted that Fed officials haven’t speculated
much on the impact of administration’s fiscal policies, such as possible
infrastructure spending package or the planned overhaul of the tax code. The
committee's views about the economy haven’t changed much since the last Fed rate
increase in December.
“The simple message is the
economy is doing well,” Yellen told reporters after the two-day meeting.
The Federal Open Market Committee (FOMC) raised the federal rate
by a quarter of a percentage point, to a range of 0.75 percent to 1 percent, which
was only the third increase in a decade. The FOMC’s statement was little
changed from earlier ones, but did note that business investment has improved.
The statement mentioned the strong job gains. Inflation, however, has changed
little and continues to run below the 2 percent annual target.
Most market analysts expect the
FOMC to raise the rate by a quarter of a percent at least two more times this year. Yellen
said, however, that the Fed will not move too quickly in raising rates. The
long-run projection for the federal funds rate is now around 3 percent, she said,
which represents a lower new normal for the rate than the historic average.
are holding to our forecast that the Fed will raise rates twice more this year,
likely in June and September,” said Mike Fratantoni, chief economist for the
Mortgage Bankers Association. Fratantoni said the Fed could establish a
policy later this year that will allow its huge stockpile of mortgage-backed
securities and U.S. Treasuries to begin running off its balance sheets.
“Given the size of their
holdings and current market conditions, balance sheet runoff could have an even
larger impact on mortgage markets than changes in their short-term rate target,”
Fannie Mae Chief Economist
Doug Duncan said the latest rate increase should have little impact on the
“We believe the Fed could stay on course to achieve its dual
mandate with a gradual monetary normalization, which would allow housing to
continue to expand,” Duncan said. “Given
continued solid job growth and recent income gains, we believe this pace of
rate increase will not derail the ongoing housing recovery,” Duncan said.
The Fed’s vote was not
unanimous. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis,
voted to keep the rates unchanged.