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U.S. Federal Reserve raises interest rates for the seventh time since 2015

The central bank anticipates that there will be two additional increments this year, one more than it projected in March

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U.S. Federal Reserve raises interest rates for the seventh time since 2015

The Federal reserve decided to raise interest rates for seventh consecutive time since in 2015 began to withdraw stimulus a quarter of a point in a complicated exercise of balance with which tries to prevent economy from being overheated or over-restrained. The price of money is thus in a band of 1.75% and 2%. The central bank indicates that it will make two more raises this year, an additional one to what it was anticipating to date.

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It is second increase that is announced in 2018 and second also of Jerome Powell in four months that it carries of president. The window for next climb opens in September and next one in December. The analysis made by Fed's economy is more optimistic and ensures that risks are balanced. Unemployment drops to 3.6%, two tenths less than current one. Projected a growth of 2.8% this year and 2.4% next.

The meeting served to analyse latest inflation data in detail. The cost of shopping basket went up two tenths in April and placed annual rate at 2.8%, highest in six years. It is attributed to rise in price of gasoline. Also because of higher energy prices raised production, eight tenths in month. The underlying inflation rate is 2.2%.

The minutes of last meeting already showed that re was a debate on progress of prices. The participants in discussion were open to allowing objective of price stability to be exceeded, although y specified that only on a temporary basis. There are discrepancies about what neutral type would be at moment. Some see it in 2.5%, and ors are higher, in 3.5%.

"Everything progresses as expected," Powell says. The final communiqué exposing arguments of decision is this time more concise and uses more direct language. And despite additional increase expected for this year, it keeps three rises in 2019. The members of Fed see type in long term in 2.9%, although it will arrive predictably at 3.4% in 2020 if current rate is maintained in process of normalization.

From January onwards, press conferences will be held after Casa reunion. The Fed insists that it will continue to move up rates gradually. He gives himself ammunition in case things get twisted. Former president Ben Bernanke anticipated last week that a recession could occur when he remitted effect of fiscal stimulus in 2020. What's more, he said timing of tax and spending increases is wrong.

The bond market reflects a similar sentiment among investors. The type in letters to two years exceeded this week at 2.5% and is close to 2.9% of bond to 10 years. The four-tenths difference is shortest in more than a decade. If curves are reversed it is a sign that recession is approaching. That's what happened in 2007 and also in 2000. This time, according to Goldman Sachs, it could be different.

The Fed's view is that this convergence is precisely result of effort it is making to prevent economy from overheating and explains that it cannot stop raising rates by simple fact that two curves are reversed. Powell takes time insisting that risk of going behind is higher, because that would force him to be more aggressive in future. "It's about navigating between two risks," he explained.

This latest rate rise occurs, in addition, in a much quieter moment in markets than in March despite trade tensions by tariffs decided by President Donald Trump. The Dow Jones regained level of 25,000 points, after chaining nine sessions in positive. The rising price of money has, in turn, caused dollar to be positive this year.


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