The Federal Reserve hiked its benchmark interest rate by a quarter of a percentage point on Wednesday, marking the second one this year. The Feds are now projecting interest rates to rise by another 1.75% to 2% by the year’s end.
The Feds’ decision to raise interest rates is directly tied to the economy robust growth rate. Officials raise the rates over time to keep the economy from overheating, which the rate hikes signal an economic growth and higher inflation.
“Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” said the Federal Reserve in a statement. “Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.”
“The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.” said the statement.
The first hike was back in March this year, which raised the target rate to 1.5% to 1.75%, tied closely to consumer rates. The projection increased the Fed’s economic forecast, pointing towards more substantial increases.
The path the economy has been heading down has led Feds to discuss the matter. In combination with the improved forecast for unemployment rates this year led the Feds to project an economic growth to reach 2.8% for the full year now. They now forecast unemployment rate of 3.5% for 2019 and 2020 and 3.6% for this year.
Expectations for gross domestic product and personal consumption reflected a 0.1 percent point increase from the previous estimates in March, which were enough to raise interest rate expectations, according to CNBC.