Fed Raises Rates, Sticks to Forecast for 2018 Increases

Fed Chair Janet Yellen

"It shows at least some members of the Fed don't see any reason to keep hiking rates in an environment where the economy is growing more strongly but certainly not overheating and where inflation hasn't become a problem and doesn't look like it is going to be one", said Kate Warne, investment strategist at Edward Jones.

It will be hard for the Fed to justify further rate increases unless inflation moves toward the central bank's target. Lee Ju-yeol told reporters.

Gross domestic product is expected to grow 2.5 per cent in 2018, up from the 2.1 per cent forecast in September, while the unemployment rate is seen falling to 3.9 per cent next year, compared to 4.1 per cent in the last set of projections.

CMB's Liu expects the yuan's exchange rate to be more volatile next year in the face of a strong dollar backed by solid US economic growth and the potential tax cut by President Donald Trump's administration.

The Federal Reserve is raising its benchmark interest rate for the third time this year, signaling its confidence that the USA economy remains on solid footing 8½ years after the end of the Great Recession.

"The BOK will decide its monetary policy after carefully reviewing every aspect in South Korea, including the economy, consumer prices and financial stability risks", said Lee.

The Fed said Wednesday that it's lifting its short-term rate by a modest quarter-point to a still-low range of 1.25 per cent to 1.5 per cent. Those rates are far below the 3 per cent to 4 per cent growth that the Trump administration insists would result from its economic policies of tax cuts, deregulation and stricter enforcement of trade laws against unfair foreign imports.

Ms. Yellen said during her postmeeting press conference that officials continue to expect the economy to expand at a moderate pace, adding that "while changes in tax policy will likely provide some lift to economic activity in the coming years", the magnitude and timing of the boost to growth remains uncertain.

In his view of the Fed, Trump has made clear that he favors low rates. "This is something I've been saying for a long time". The fed funds rate influences a variety of other rates that consumers and businesses pay throughout the economy. Policymakers are forecasting another three rate increases next year, although concerns about low inflation, which has consistently undershot the central bank's 2% target, give some market participants pause about that pace of rate increases.

Traders of USA short-term interest rate futures kept bets the Fed would raise rates only twice next year. That indicates possible concerns about a rise in inflation pressures over time.

Ms. Yellen also said she anxious higher deficits now could limit the scope for fiscal policy makers to respond aggressively to an economic downturn in the future.

In response to a question about the possibility of the Fed's own digital currency, Yellen acknowledged that there had been discussions on the topic, but confirmed that it was not under serious consideration at present.

Yellen's comments, which were delivered in what is nearly certainly her final press conference as Fed chair before her term expires in February, come as some Senate Democrats have assailed Powell and President Trump's recently installed vice chair of supervision, Randal Quarles, as insufficiently tough on Wall Street banks and questioned their dedication to ensuring that financial firms do not pose a risk to the financial system. If prices don't rise, wages don't either. Mr. Powell was nominated last month to take the helm and is awaiting Senate confirmation, but should face no difficulty after a panel voted 22-1 last week to advance his nomination.

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