Federal Reserve expected to hike rates on Wednesday, but outlook soft for 2019
The US Federal Reserve will announce the result of its monthly rate-setting meeting today, the final of 2018. America’s central bankers are widely expected to increase interest rates by 25 basis points to 2.5%.
The Fed is also expected to signal that it is prepared to hold off on future rate hikes if inflation remains tepid. As the Trump administration continues to wage its trade war with China, the threat of rising borrowing costs and slowing growth will make the Fed more likely to hedge rates towards the lower end of its 2.25-2.5% band. While GDP growth has slowed over the past quarter, quarterly growth rates remain at 24-month highs and well above the long-run growth potential consensus of 2%.
The prospect of a rate hike has drawn strong opposition from the White House. President Donald Trump claims that the economy is still below its long-term growth rate due to the market effects of a sell-off in equities and a stronger US Dollar impacting domestic manufacturers. Economists still anticipate three hikes in 2019, but the delayed impacts of the US-China trade war and the tapering off of the fiscal effects of the Trump tax cut make it likely this could be reduced to two.
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