Fed Hikes 25 Basis Points In Jay Powell’s First Meeting as Chairman
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Fed Hikes 25 Basis Points In Jay Powell’s First Meeting as Chairman

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The Federal Reserve raised the Fed Funds rate by 25 bps to a target of 1.50% to 1.75% this afternoon.

The move marks the sixth such move since the Fed began moving the Fed Funds rate from zero in December 2015, and was unanimous.   While the Fed did not raise its outlook for 2018 (the median forecast remains at a total of 3 hikes), it raised its Fed funds rate forecast to 2.75% at the end of 2019 and 3.40% at the end of 2020 (the long-run forecast was also raised to 2.90% from 2.75%).

The Fed’s decision to raise to a 3.40% Fed funds forecast basically assumes an additional 2 more 25 basis point hikes over the next three years than it had guided to previously.  Interestingly, it is making these forecasts at a time when it also does not see inflation rising much above 2% between now and the end of 2020, and sees the unemployment rate falling from its current 4.1% level all the way to 3.6% in 2019. 

Unforeseen economic events can often cause the Fed to quickly change policy.  In this case, however, the Fed is guiding towards a faster pace of action against both the assumption of a very stable inflationary environment and the increasing likelihood of economic disruption caused by an unhinged President Trump.

We would, therefore, continue to be very, very cautious about locking into CDs longer than 1-year right now.  

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.
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