Federal Reserve officials voted Wednesday to raise the central bank’s interest rate target, the fourth such rate increase of the year, but also signaled that they will slow the pace of rate hikes in 2019.
The central bank also lowered initial estimates for economic growth in 2018, and tempered its outlook for U.S. economic growth in 2019.
“Over the past year the economy has been growing at a strong pace, the unemployment rate has been near record lows, and inflation has been low and stable,” Federal Reserve chairman Jerome Powell said at a press conference. “All of those things remain true today.”
Nevertheless, he said, “some cross-currents have emerged.”
The central bank decided to move ahead over the protests of President Trump, who has taken the unusual step of vocally criticizing the Fed on social media and in interviews for raising interest rates.
The Fed’s target for short-term interest rates will now move to an upward limit of 2.5 percent, an increase of a quarter of a percentage point.
The Fed also downgraded, slightly, its outlook for U.S. economic growth in 2018, from an estimate of 3.1 percent in September to an estimate of 3.0 percent, which would just barely meet Trump’s promise of 3 percent economic growth. Projections for economic growth next year also were lower than estimates in September, dropping 0.2 percentage points to 2.3 percent. The Fed sees economic growth shrinking further to 2 percent in 2020 and 1.8 percent in 2021.
Fed officials now only anticipate two rate hikes next year, rather than the two they previously projected as a group, another sign that the central bank thinks the economy could slow from its current pace moving forward.
Federal Reserve Chairman Jerome Powell said in a speech last month that interest rates “are still low by historical standards” due to the prolonged period that the Fed kept rates unusually low following the 2008 global financial crisis, and they could continue to rise next year as the Fed hopes to keep them neutral — neither speeding up nor slowing down economic growth.
Powell has signaled multiple times, though, that the Fed soon will not be in the position of expecting regular, gradual rate increases, and instead will evaluate future hikes based incoming economic data. The central bank’s leaders still see a strong outlook for the U.S. economy in 2019, but concerns are growing that the Trump administration’s trade wars and other geopolitical events, like the culmination of the U.K.’s exit from the European Union, could drag on U.S. economic growth.
At 2 percent in October, inflation is also right at the Fed’s target.
