Fed raises rates amid stronger inflation, drops crisis-era guidance

Stephen Stanley chief economist at Amherst Pierpont and Bob Browne Northern Trust CIO discuss the

(Kitco News) - Gold prices are holding steady just below the psychological barrier of $1,300 an ounce after the Federal Reserve suggested that it will hike interest rates more aggressively this year and the next as the US economy continues to grow. The median average of the central bank's updated forecasts - also referred to as the "dot plots" - called for interest rates to end the year around at 2.4%, up from March's projection of 2.1%; The forecasts suggest the Fed will raise interest rates two more times this year.

The so-called "dot plot" released Wednesday showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March.

The Fed announced the rate rise at the close of a two-day meeting in Washington.

The Federal Reserve expects the US gross domestic product to grow by 2.8% in 2018, up from March's forecast of 2.7%.

Powell will face reporters during a press conference at 2:30 p.m. ET.

They see another three rate increases next year, a pace unchanged from their previous forecast.

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On inflation, policy makers forecast a slight overshoot of their target starting in 2018 at 2.1 percent, and running through 2019 and 2020, compared with a 2020 overshoot in March's projections.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run. It would allow the Fed to be less choreographed and more flexible in cutting or raising rates as economic conditions warrant.

The committee sees further declines the unemployment. The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target. This is partly why a rate hike is expected; the Fed usually only hikes when there are pressers so the chair can talk about the decision. Officials have also set in motion a plan to reduce the Fed's bond holdings, as the central bank moves away from accommodative policies employed during and after the 2008 financial crisis.

Trump's imposition of tariffs on steel and aluminum imports has enraged USA allies.

Individual Fed policymakers have expressed concerns about the economic risks of a broad tit-for-tat tariff retaliation, but have said they would not change their policies or forecasts until those risks are realized.

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