U.S. Fed continues gradual rate hikes in 2018

Source: Xinhua | 2018-02-24

U.S. Federal Reserve is expected to continue gradual interest rate hikes this year on the expectation of stronger economic outlook.

"The (Federal Open Market) Committee expects that the ongoing strength in the economy will warrant further gradual increases in the federal funds rate," said the semiannual Monetary Policy Report to the Congress released by the Fed on Friday.

The report was released before new Fed chair Jerome Powell's first Congress testimony which was scheduled on Feb. 27.

"The economic expansion continues to be supported by steady job gains, rising household wealth, favorable consumer sentiment, strong economic growth abroad, and accommodative financial conditions," said the report.

It noted that federal fiscal policies, including the 1.5-trillion-U.S. dollar tax cuts and increased budget spending for fiscal 2018 and 2019, would likely give a "moderate boost" to the economic growth this year.

The report, by using the same Fed forecasts released in December, stated that Fed officials expect three interest rate hikes this year.

Despite the recent market turbulence, the Fed still held that overall vulnerabilities in the U.S. financial system remain moderate on balance.

However, it warned that valuation pressures continue to be elevated across a range of assets, including equities and real estate.

In their public remarks, Fed officials have downplayed the impact of recent market volatility, saying they would stick to their forecast of stronger growth outlook and gradual rate hike pace.

According to the minutes for Fed's policy meeting on Jan. 30 and 31, Fed officials have become more confident about the growth and inflation outlook, paving way for gradual interest rate hikes in the future.

A number of officials had marked up their forecasts for economic growth in the near term, in view of the accommodative financial conditions, big tax cuts and solid domestic and overseas economic data.