The Federal Reserve on Wednesday raised interest rates for the second time this year and nudged up its projections for GDP growth in 2018, in a further endorsement of the U.S. economy’s strength.
The balance on the Fed’s interest-rate-setting committee has tipped in favor of two more rate hikes in 2018, rather than only one, bolstered by an uptick in the central bank’s projections for inflation this year and next.
Following Wednesday’s rate hike, the Fed’s main borrowing rate — which influences interest rates on everything from mortgages to savings accounts — is set between 1.75 percent and 2 percent.
Fed officials now predict the economy will grow 2.8 percent this year, up from their 2.7 percent projection in March, though their estimates for 2019 growth remain unchanged at 2.4 percent.
The central bank is still signaling three rate hikes for 2019, but Fed officials now showing an appetite for only one in 2020.
Meanwhile, Fed officials estimate the unemployment rate could fall to as low as 3.6 percent this year and 3.5 percent next year. It currently stands at 3.8 percent.
The central bank’s post-meeting statement removes a reference to monitoring inflation developments. Although Fed officials spent roughly a year worrying that inflation was too weak, it has since risen to the Fed’s 2 percent target, and the central bank projects it will stay around that level for the next couple of years.
The statement also no longer says that the Fed’s main borrowing rate is expected to “remain, for some time, below levels that are expected to prevail in the longer run.” That means the central bank expects that interest rates will soon reach a more neutral level, where the Fed is no longer boosting the economy.