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Fed lifts rates for 4th time this year but sees fewer hikes

21 December 2018

The U.S. Federal Reserve on Wednesday raised short-term interest rates by a quarter of a percentage point, but signaled a slower pace of rate hikes next year as the U.S. economy is expected to cool down.

The Fed lifted the target federal funds rate by 25 basis points from 2.25 percent to 2.5 percent, causing the price of silver to decline following the hike announcement. Gradually rising interest rates have made home mortgages more expensive in the last year, growing from around 4 percent at the end of 2017 to a high of nearly 5 percent for a 30-year fixed-rate mortgage by early November, according to Freddie Mac.

FOMC said, in determining the timing and size of future adjustments to the target range for the federal funds rate, the Fed would assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 per cent inflation objective. US stocks are on pace for their biggest December decline since 1931, when America was in the depths of the Great Depression.

This is the fourth hike this year, . and the ninth since the Fed began normalizing rates in December of 2015.

VideoU.S. markets sold off sharply again in Thursday trading as 2018 shapes up to finish as a woeful years for investors.

Members also said they expect inflation to hover around 1.9% next year, compared to a 2% forecast in September.

The natural question in this case would be why the stock market reacted so negatively, especially given that the two-hike scenario would be more positive for the economy compared to the three-rate one. No longer will the Fed be able to signal weeks in advance the near-certainty of a shift in rates.

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USA stocks careened to a 15-month low after Jerome Powell failed to quell investor angst that the Federal Reserve's tightening policy will throttle economic growth.

On Thursday, Japan kept its policy settings unchanged, as expected. But it also raises the risk that the Fed will jolt financial markets by catching them off guard.

Powell also acknowledged that the Fed's decisions are getting trickier because they need to be based on the most up-to-date figures on jobs, inflation, and economic growth.

According to Federal Reserve Chairman Jerome Powell, the world's largest economy continued to strengthen this year, roughly in line with expectations.

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Historically, an inversion between short yields, such as three-month and two-year yields, and 10-year yields has been seen as a fairly reliable indicator of a recession down the road. The Chinese market is 2018's worst performer, down almost 25 percent for the year. The appeal of emerging market stocks has risen since September, when the currencies of developing economies stabilised following a brutal sell-off.

Still, global growth has slowed.

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Tax cuts introduced at the start of the year, helped to stimulate the nation's economy and boosted equity markets, which created an attractive environment for the USA dollar.

In addition, the Fed has been gradually shrinking the vast portfolio of Treasury and mortgage bonds it built up after the 2008 financial crisis.

Interest rates have increased seven times since President Donald Trump took office.

This dichotomy between an economy that is expanding at a robust pace and volatile markets that are coming under further pressure is the main reason why this Fed meeting was preceded by such uncertainty about outcomes, together with a heated debate that has not been seen for years.

This week, Trump fired off two tweets objecting to a likely rate hike.

In response, banks across the U.S. began raising their prime lending rate to 5.5% from 5.25%.

Gold prices steadied on Thursday, after shedding half a percent in the previous session as the US Federal Reserve delivered a less-dovish outlook on monetary tightening than many had expected.

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Fed lifts rates for 4th time this year but sees fewer hikes