comscore Fed raises key interest rate, foresees 3 hikes in 2017 | Honolulu Star-Advertiser
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Fed raises key interest rate, foresees 3 hikes in 2017

  • ASSOCIATED PRESS

    Federal Reserve Chair Janet Yellen testified on Capitol Hill, on Nov. 17, in Washington, before the Joint Economic Committee. The central bank today announced after its latest policy meeting that it’s increasing its benchmark rate by a modest quarter-point to a still-low range of 0.5 percent to 0.75 percent.

WASHINGTON >> The Federal Reserve has raised a key interest rate in response to a solid U.S. economy and expectations of higher inflation, and it foresees three rate hikes in 2017.

The Fed’s action today will mean modestly higher rates on some loans.

The central bank announced after its latest policy meeting that it’s increasing its benchmark rate by a modest quarter-point to a still-low range of 0.5 percent to 0.75 percent. The Fed last raised the rate in December 2015 from a record low near zero set during the 2008 financial crisis.

The Fed’s move, only the second rate hike in the past decade, came on a unanimous 10-0 vote. It also released an updated economic forecast that showed modest changes to its outlook for economic growth, unemployment and inflation, mainly to take account of stronger growth and a drop in the unemployment rate for November to a nine-year low of 4.6 percent.

Its new projection has the unemployment rate dipping to 4.5 percent by the end of 2017 and remaining at that level in 2018.

The Fed foresees economic growth reaching 1.9 percent this year, slightly above its forecast in September, and 2.1 percent in 2017. That’s slightly more optimistic than it projected in September.

The Fed kept its long-term estimate for economic growth at 1.8 percent, far below the 4 percent pace that President-elect Donald Trump has said he can achieve with his program of deregulation, tax cuts and increased spending on infrastructure.

The Fed’s estimate that it will raise rates three more times in 2017 is up from an estimate of two increases at the September meeting.

Its policy statement showed only modest changes in wording from the previous meeting. It said “economic activity has been expanding at a moderate pace since mid-year” helped along by solid job growth.

Trump’s plans for tax cuts and infrastructure spending have led investors to expect that inflation will pick up in coming months.

The economy, after growing at an anemic annual rate of 1.1 percent in the first half of this year, accelerated to a 3.2 percent pace in the July-September quarter. That pickup has lifted hopes that the economy will keep rising, fueled by steady hiring gains.

In the month since Trump’s victory, investors have sent stock prices surging to record highs and driven up bond yields. The markets have calculated that Republican control of Congress will enable Trump to cut taxes, ease regulations and accelerate infrastructure spending — and that higher economic growth, inflation and corporate profits will result.

The Fed’s action today should have little effect on mortgages or auto and student loans. The Fed doesn’t directly affect those rates, at least not in the short run. But rates on some other loans — notably credit cards, home equity loans and adjustable-rate mortgages — will likely rise soon, though only modestly. Those rates are based on benchmarks like banks’ prime rate, which moves in tandem with the Fed’s key rate.

Mortgage rates have been surging since Trump’s election victory last month on expectations that his economic program will accelerate economic growth and inflation.

Some Fed watchers expect faster growth to lead the central bank to shift its focus from trying to energize the economy to considering ways to counter the risk of too-high inflation. On that assumption, some are revising their forecasts for Fed rate hikes in 2017.

Before Trump’s victory, the consensus view of economists was for two Fed rate increases next year. Now, some say they foresee three or possibly as many as four. Others think the Fed will be hesitant to step up the pace of rate hikes. For one thing, Trump’s economic program still must win congressional approval and could undergo significant change along the way.

Last month after Trump’s election, Fed Chair Janet Yellen told a congressional committee that Fed officials would be monitoring Congress’ actions and “updating our economic outlook as the policy landscape becomes clearer.”

Other Fed officials have endorsed that wait-and-see approach.

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  • Its about time we end the Fed. Regional and individual financial institutional interest rates would be step in the right direction. This one pill for the entire country leads down this pathetic cycle.

      • Bad day yesterday : Plan vs. Reality from Raymond James
        Never forget that if you think OPEC is bad…the Fed is worse. No entity I am aware of in the free world holds a candle to the sheer unbridled stupidity of central banks.

        The Fed could easily cause an full on economic implosion. One must always weigh that risk and assume the Fed will act in as stupid a manner as possible. I think of them as an secret enemy of civilization,trying not to blow Thier cover as decent human beings, then work backwards to figure out how much damage they can do without getting called on it.

        I think the chance of three rate hikes next year if economic growth is under 3% is basically zero. Remember this year was what 3 or 4 rate hike predicted at this time in 2015? Next year will have at MOST two raises.

  • Now that the Feds have raised the interest rates the buying power of the consumers will go down, thereby
    lowering the price of homes in Hawaii. Will the City be lowering the property tax assessments next year??? I think not.

  • See what Trump says– I am not sure. Higher rates means value of the dollar will go up relative to the Chines Yuan which will increase the balance of payments/trade deficit with China– Trump won’t like that. Higher rates will increase the cost for Trump spending on infrastructure as costs of borrowing and deficit spending will rise (Trump wanted rates to stay low for this reason).

  • The Fed sees the economy strengthening since the election, we had 8 years of dismally slow economic growth during the lost Obama years, and now that we have a new more economic direction for the country. Thank you President-elect Trump for changing the outlook for us as we make America Great Again. Now, we need to work on the corrupt, one party rule here at home in Hawaii. We have to get ready for slower economic growth here at home, until the electorate wakes up and votes for more balanced representation.

    • Well, there’s another way to look at your statement. It has taken the President eight years to bring the economy back after a generation of the Bush dynasty. But that’s really not what I wanted to say. If the Fed is raising rates, it means that they foresee another cycle of inflation. By making “money” more expensive, they can exert a small damper on inflationary tendencies. So What? Well for people on a fixed income, it means a lot. It really matters if they are carrying debt.

      • Cello, you are correct that people on a fixed income and those carrying debt will feel it some more than others, but if there was severe inflation, these same people would be feeling it worse and the working people would also suffer, maybe more since more people depend on their income.
        W had 7 years of sizable economic growth, followed by one year of decline, just for your information.

    • Not really. The Market went up following the Election. You can look for major investors to take profits which will bring the DJ back down and then it will equilibrate. If you have money in the Market, leave it alone. Resist the urge to divest at a low point. It will come back. I promise you.

      • Generally, the market always takes a bounce up after a presidential election, as the short term anxiety over what’s going to happen is over. Conversely, after a good year economically speaking, the market will take a dip about a month before April 15th, as investors who realized gains in their holdings will need to sell some off in order to cover the tax liability created by those gains. Study the market long enough and you do see some patterns emerge.

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