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Federal Reserve decision on interest rates, September 2018

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jerome powell
Federal
Reserve Board Chair Jerome Powell

Jose
Luis Magana/AP


The Federal
Reserve
is set to announce at 2 p.m. ET that after a two-day
policy meeting, it decided to
raise interest rates

The third rate hike of the year would lift the fed funds rate by
25 basis points to a range of 2%-2.25%. Also, it would be the
eighth time the Federal Open Market Committee raises borrowing
costs since it started in late-2015; it held rates near zero
after the Great Recession to speed up the economic
recovery. 

Short-term interest rates are most affected by Fed decisions.
That means rates on things like credit cards will rise soon after
Wednesday. Mortgage rates are on the rise, but strong
demand for housing
has meant that the impact is still
minimal. Savers should also see their interest rates
increase, although banks tend to lift these slower than they do
for borrowers. 

Wednesday’s Fed decision is not about the expected rate hike,
however. It’s all about what Fed officials including Chairman
Jerome Powell say about the future of the US economy and interest
rates. 

The voting FOMC members will release a new projection for where
they see rates over the next two years and in the long run, known
as the dot plot. Their June
dot plot
 indicated three rate hikes next year and one in
2020, raising questions about what happens afterwards. 


Read more: Here’s how the Fed raises interest
rates and why it matters

Some economists are urging the Fed to be even more patient with
hiking because short-term rates could soon tip over longer-term
ones, which are normally higher. The yield difference between 2
and 10-year Treasurys shrank to an 11-year low of 21 basis points
last week; a so-called
yield-curve inversion
 happens when it goes negative, and
is used as a recession signal.

The Fed’s statement will likely strike a bullish tone on the
economy yet again; the
labor market
is near full employment, jobless claims are at a
48-year low, and
consumer confidence
is at an 18-year high.

But as with interest rates, the forward-looking statements will
be most interesting.

For one, we’ll get a our first look at the Fed’s projections for
2021.

Also, when Powell holds a press conference starting at 2:30 p.m.
ET, he’ll likely be asked about the risks of a trade
war
to the economy. He
downplayed the threat
during Congressional testimony in July,
but President Donald Trump has since imposed tariffs on an
additional
$200 billion worth of Chinese goods
, and threatened to impose
duties that would cover half of all imports from the world’s
second-largest economy. 

Powell may also be asked to respond to
Trump’s criticism
of the Fed’s rate hikes. 

On Wednesday, our team expects Powell to highlight the
growing upside risks to the economic backdrop, downplay the
potential impact of tariffs on the economy, and dodge any
questions on the politicization of the Fed,” said Lori Calvasina,
the head of US equity strategy at RBC Capital Markets, in a
preview. 



More to come, refresh this page for the latest at 2 p.m.
ET.

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