JAKARTA (TheInsiderStories) – The Federal Open Market Committee (FOMC) hinted to raise the federal funds rate (FFR) twice in this year. In the latest meeting the board agreed to raised the FFR by a quarter point from 2.25 to 2.50 percent, hiked it the fourth increase in the year and the ninth since policy normalization began in December 2015.
The board also approved a 0,25 percentage point increase in the primary credit rate to 3.00 percent. In the Dec. 20, 2018, the Fed to undertake open market operations as necessary to maintain the federal funds rate in a target range of 2.25 to 2.50 percent.
Its include overnight reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions at an offering rate of 2.25 percent. Such operations and by a per-counter party limit of $30 billion per day.
FOMC indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate in November 2018. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low.
So far, household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The board judges that some further gradual increases in the target range for the FFR 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.
FOMC also judges that risks to the economic outlook are roughly balanced, but will continue to monitor global economic and financial developments and assess their implications for the economic outlook.
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Beforehand, in the meeting, members of the Board of Governors and Fed chairman Jerome Powell submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2018 through 2021 and over the longer run, based on their individual assessments of the appropriate path for the FFR.
The Fed noted that during the transition to a long-run operating regime with excess reserves below current levels, the effective FFR could begin to rise a little above the interest on excess reserves rate as reserves in the banking system declined gradually to a level that the Committee judges to be most appropriate for efficient and effective implementation of policy.
This upward movement in the federal funds rate could be gradual. However, the staff noted that the federal funds rate and other money market rates could possibly become somewhat volatile at times as banks and financial markets adjusted to lower levels of reserve balances.
Written by Daniel Deha, Email: email@example.com