Fed lifts rates in Powell’s first meeting, says outlook has strengthened

Washington (Mar 21)  The Federal Reserve on Wednesday lifted a key U.S. interest rates and was upbeat about the road ahead, saying the outlook had strengthened despite some slowdown in the first quarter.

In the first meeting of Fed Chairman Jerome Powell, the central bank avoided sending any overtly hawkish signal about policy.

The Fed stuck to its December forecast of three rate hikes this year. The central bankers did push up their expected rate path in 2019 and 2020.

As widely expected, the Fed raised its benchmark federal funds rate by a quarter percentage point to between 1.5% and 1.75%. That is the sixth quarter point move since December 2015.

In its statement, the Fed said “the economic outlook has strengthened in recent months,” while noting that household and business fixed investment “have moderated from their strong fourth-quarter readings.”

The Fed now sees a total of 8 quarter point hikes until the end of 2020 – three this year, three in 2019 and two in 2020, - with rates ending up near 3.4%.

That’s above the Fed’s revised estimate of longer run neutral federal funds rates. The Fed ticked up its estimate of the long run neutral interest rates to 2.9% from 2.8% in December. That is the rate that is neither boosting nor tightening economic conditions.

Many economists had expected the Fed to pencil in four rate hikes at this meeting and prior to the meeting financial markets see almost a 40% chance of four moves.

But other economists said the slowdown in growth in the first quarter gave the Fed room to wait. They argued the Fed could easily signal it intends to hike rates four times at its June meeting if economic conditions warrant.

Stocks DJIA, +0.80%  and bonds TMUBMUSD10Y, +0.48%  were little changed immediately after the decision.

There were no dissents from the Fed policy statement.

Powell will hold a press conference at 2:30 p.m. Eastern.

MarketWatch