The Federal Reserve raised interest rates by a quarter point on Wednesday and removed the use of "accommodative" language in its statement, signalling a potential shift in policy.
The Federal Open Market Committee increased the overnight funds rate to a range of 2.00% to 2.25%..
The Fed removed its use of "accommodative" to describe its stance on monetary policy. That could be a potential move to a more hawkish stance by indicating the economy is strong enough to sustain more rate increases, but could also suggest that there is less lead for tightening as the Fed is closer to a neutral rate.
"The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced," the statement said. "In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent."
Members of the rate-setting committee kept their 2018 median forecast for interest rates unchanged at 2.4%, suggesting a December rate hike remained in play, which would take the total rate hikes in 2018 to four. The outlook on rates for both 2019 and 2020 were also maintained at 3.1% and 3.4%, respectively.
"The median interest rate forecast “dot” continues to anticipate another hike in December—albeit with more conviction than in the last set of dots in June—another three hikes next year, and one more hike in 2020; the first look at the 2021 dots indicates policy rates expected to be on hold at 3.375%," JPMorgan said.
The odds of a December rate hike slipped below 80% after the announcement, according to 's Fed Rate Monitor tool.
In a sign of confidence in the U.S. economy, members of the rate-setting committee raised their economic growth projection for this year, forecasting U.S. economic growth of 3.1% in 2018, an increase from the previous projection of 2.8% in June. The growth outlook for 2019 was hiked by 10 basis points to 2.5%, but 2020's was unchanged.
The Federal Reserve left its outlook on inflation unchanged, forecasting core-PCE inflation outlook for 2018 at 2.0%. While Core-PCE Inflation for 2019 and 2020 was left unchanged at 2.1%.
The central bank's unchanged outlook on inflation comes as the most recent reading of the core PCE price index, the Fed's preferred measure of inflation, came in at 2%, though the central bank has signalled that it was somewhat comfortable with inflation running above target.
The tightness in the labor market is expected to ease in 2018, with the unemployment rate expected at 3.7%, up from a prior forecast of 3.6%. The central bank forecasts the unemployment rate for both 2019 and 2020 at 3.5%, in line with a previous estimate.
The U.S. dollar index sold off quickly following the statement. That could be due to bets that the removal of "accommodative" in the statement indicates less urgency for tightening, which is bearish for the greenback.
This is a breaking news story; please refresh the page for updates.
