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Posted On December 20, 2018
Yesterday, the Federal Open Market Committee (FOMC) voted to raise the benchmark interest rate 25 basis points to a level of 2.25 % to 2.5%. The final rate hike of the year brings 2018’s total up to four rate hikes, one more than projected in the Federal Reserve’s December 2017 statement. The highly anticipated move is reflective of strong job growth and solid consumer spending. Business investment, however, has started to moderate. At this time, the Fed predicts two additional rate hikes in 2019.
From the official interest rate statement:
“Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.”
December’s statement is very close to November’s statement, with the only notable change being the lowering of rate hike projections for 2019. Federal Reserve Chair Jerome Powell noted, among other influencers, that global economic uncertainty surrounding events like Brexit have impacted the decision. Powell plans to “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”
When the Federal Reserve raises rates, the cost to borrow money will increase. Mortgage interest rates, auto loan interest rates, and credit card interest rates will react gradually.