The Federal Reserve raised the Fed Funds rate by 25 bps to a target of 1.50% to 1.75% this afternoon.
The move marks the sixth such move since the Fed began moving the Fed Funds rate from zero in December 2015, and was unanimous. While the Fed did not raise its outlook for 2018 (the median forecast remains at a total of 3 hikes), it raised its Fed funds rate forecast to 2.75% at the end of 2019 and 3.40% at the end of 2020 (the long-run forecast was also raised to 2.90% from 2.75%).
The Fed’s decision to raise to a 3.40% Fed funds forecast basically assumes an additional 2 more 25 basis point hikes over the next three years than it had guided to previously. Interestingly, it is making these forecasts at a time when it also does not see inflation rising much above 2% between now and the end of 2020, and sees the unemployment rate falling from its current 4.1% level all the way to 3.6% in 2019.
Unforeseen economic events can often cause the Fed to quickly change policy. In this case, however, the Fed is guiding towards a faster pace of action against both the assumption of a very stable inflationary environment and the increasing likelihood of economic disruption caused by an unhinged President Trump.
We would, therefore, continue to be very, very cautious about locking into CDs longer than 1-year right now.
Add your Comment
or use your BestCashCow account