Fed hikes rates for eighth time since 2015

• HDFC securities
• 28 Sep 2018
• Knowledge Centre

Following a two-day policy meet on 27th September 2018, the US Fed raised interest rates by 25 bps (basis points) and indicated another hike in December 2018, followed by three more in 2019. The US central bank also dropped the word ‘accommodative’ from its policy statement.

 

The Fed described its policy stance as ‘accommodative’ for many years, to assure markets that it would not stifle economic growth. Interest rates are now at their highest levels since October 2008, just after the collapse of Lehman Brothers. The central bank began increasing rates in late 2015 from a near-zero level.

 

“In view of realized and expected labor market conditions and inflation, the committee decided to raise the target range for the federal funds rate to 2% to 2.25%.” the Fed policy statement said.

 

However, the Fed move has led some to believe that the Reserve Bank of India will be forced to hike interest rates in the upcoming policy meets. A financial daily has quoted Mr. AK Prabhakar, Head of Research at IDBI Capital as saying, “The Fed rate hike will further strengthen the Dollar, and thereby put further pressure on the Rupee. Rising crude oil prices, as well as interest rates, will lead to an outflow of foreign money. Indian market may see some short-term pressure ahead of the forthcoming elections.”

 

The Fed sees the US economy growing at a faster-than-expected 3.1% this year, and continuing to expand moderately for at least three more years, amid sustained low unemployment and stable inflation near its 2% target. “The labor market has continued to strengthen and the economic activity has been rising at a strong rate," the Fed said in its statement.