Fed raises rates, suggests more to come

Stern NYU professor of economics Nicholas Economides and former Richmond Fed senior economist Ward McCarthy on Federal Reserve Chairman Jerome Powell's first press conference and the market's reaction to the interest rate hike.

While markets are sure about the quarter-point rate hike, they are less confident of what the Fed signals next: three increases this year, as previously forecast by policy makers, or four. The Fed's policy committee still assembled notwithstanding the snow that closed most of Washington and the resolution to hike rates was undivided.

"We expect the prospect of a trade war between the U.S. and other economies to put a floor under gold prices in the short term, but ultimately we think that Fed tightening will prove too strong a headwind", Capital Economics analyst Simona Gambarini told the Reuters Global Metals Forum.

The effects of the expected Federal Reserve interest rate hike on Wednesday will extend beyond corporate America to household budgets.

Members also expect higher interest rates in 2019 and 2020 than was the case in December 2017, which Brian Coulton of Fitch Ratings described as a "firming up of the future trajectory of policy tightening".

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The Fed is expected to lift its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.50 percent to 1.75 percent at the end of a two-day meeting on Wednesday.

The US central bank projected late past year that it would lift rates three times in 2018, but some investors believe the fiscal stimulus and inflation pressures will push policymakers to add an additional increase to the mix.

Central bankers admitted to being befuddled by the absence of inflation previous year despite the economic recovery and strong job market, but Wednesday's statement repeated the view that 12-month inflation is expected to move up to the Fed's 2% goal "over the medium term". They raised their estimate for growth in 2019 to 2.4 percent, up from 2.1 percent.

In December, the "central tendency" of Fed officials' projections was for an interest rate target of between 2.4 percent and 3.1 percent at the end of 2019; that range has now shifted up to 2.8 percent and 3.4 percent.

Despite Wednesday's move USA interest rates are still far lower than the historic norm of about 5 percent. And the higher rates go, the more people will have to cut back, which translates into slower economic growth.

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Oddly, the Fed kept its inflation forecast for the next two years the same even though it sees a stronger economy and falling unemployment rate.

"Taking trade restrictive measures will not only impede normal global trade order but also cause serious damage to the multilateral trade system", Vice Commerce Minister Wang Shouwen said at a two-day World Trade Organization ministerial meeting that ended on Tuesday.

Some investors had speculated that Powell might move to impose his mark on the central bank by indicating a faster pace of rate hikes for 2018.

There have been positive technical signs including rebounds in the prices of big-cap stocks in the energy and petrochemical groups, as well as for mid-cap stocks, following rises in the SET Index, he said. The fed funds rate, for example, topped out at 5.25% at the height of the last economic expansion from 2001 to 2007.

"With intensive deleveraging efforts ongoing and a potential uptrend in CPI inflation, we expect China's current monetary policy to continue its tightening bias under Yi's leadership", Wang added. The Fed tightened policy three times a year ago. But a recent $1.5 trillion tax cut and $300 billion spending bill, along with an improved economic outlook, have more recently changed that calculus.

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