JAKARTA (TheInsiderStories) — The Federal Open Market Committee (FOMC) decided to increase the Federal Reserves Fund Rate (Fed Fund Rate) by a quarter point, to 2.25-2.5 percent at a meeting on Wednesday (12/19), the highest level since spring of 2008.
This is the fourth Fed rate increase this year, the most since 2006, and it signaled that there will only be two more rate hikes in 2019. In the policy statement, the Fed mentioned that the labor market has continued to strengthen and economic activity is also rising strongly.
Other than that, the FOMC signaled some financial softening. It is also projected moderate growth for next year. “The economy has continued to perform well,” said the chairman Jerome Powell.
The central bank’s move came after President Donald Trump criticism over the rate hike. Previously, the leader had been badgering the Fed’s chairman Powell, and mentioning The Fed policy stance as “crazy”, “loco,” “ridiculous,” and “way off base”.
Trump even tweeted, “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!”
Possibly, for Trump, the Fed’ rate hike may slowdown the US economy, which can bring inflationary pressures. Trump also doesn’t like the fact that US Dollar strengthening could make imports cheaper and exports more expensive, thus worsening the trade balance.
Soon after the announcement, investors hit the sell button, giving up what had been modest gains after several days of brutal selling. The Dow Jones industrial average closed down more about 1.5 percent, to its lowest level of 2018.
The Dow and the Standard & Poor’s 500-stock index are on pace for their worst quarter since 2011 and worst year since 2008. The Dow has fallen 10 percent from its September peak, wiping out all gains for the year.
Other markets, especially high-yield debt, are also showing signs of stress and making it more difficult for companies to borrow money.Stocks have dropped every Fed decision since Powell took over the top leadership role in February.
In addition to Trump, several prominent Wall Street investors have criticized Powell, saying the Fed has raised interest rates too much this year and should hit the pause button.
The Fed expects unemployment to fall to 3.5 percent next year and inflation to remain at a modest 1.9 percent. Unemployment remains at nearly a 50-year low, and growth is hovering around 3 percent this year.
The Fed’s next meeting takes place Jan. 29 and 30.
Written by Staff Editor, Email: email@example.com