After nine years of USA recovery, Fed sheds anxieties

Traders work on the floor of the New York Stock Exchange for Tuesday trading

The central bank's new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast.

"The Fed deserves tremendous credit for steering the economy to calmer waters, supporting what is likely to be the longest expansion in USA history while meeting inflation and employment objectives", said Stephen Gallagher, chief US economist at Societe Generale.

Beginning in 2008 in the midst of the financial crisis, the Fed kept its key rate unchanged at a record low near zero for seven years. Fed officials project their preferred gauge of inflation hitting 2.1 percent in the fourth quarter of this year, compared to 2019 in the March forecast.

Fed policy makers now see USA unemployment at 3.6 per cent in the fourth quarter, followed by 3.5 per cent in 2019 and 2020, based on median projections. The S&P 500 Index closed 0.4 percent lower in NY, while benchmark 10-year yields ended a little higher at 2.97 percent.

While many economists think the current expansion will exceed the 1990s streak, some worry about what might occur once the impact of the tax cuts begin to fade and the Fed's gradual rate hikes begin to curb growth. The updated dot plot, which reflects voting FOMC members' expectations, showed two more rate hikes this year for a total of four; in March, officials saw three.

It was the Fed's seventh rate increase since 2015, and it followed an increase in March this year.

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"Having twice as many press conferences does not signal anything about the pace or timing of future interest rate changes", Powell said.

Federal Reserve Chairman Jerome Powell may have uttered the most unlikely words in the history of central banking Wednesday when he responded to a question at a press conference by saying "our mandate has nothing to do with marijuana". In the longer run, it maintained the forecast for 1.8% growth.

The Federal Open Market Committee indicated that even though it's stepping up the pace of interest-rate hikes, economic growth should continue apace. That's weaker than the White House's forecast for 3% growth in 2021, suggesting the Fed is less optimistic about the boost from tax cuts.

The rate increase was in line with investors' expectations and showed policymakers' confidence in the economy's growth prospects, continued low unemployment and steady inflation.

The committee sees further declines the unemployment. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 per cent. Indicators of longer-term inflation expectations are little changed, on balance.

The Fed said its policy of further gradual rate increases will be "consistent with a sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2% objective". After years in which the economy expanded at roughly a tepid 2 per cent annually, growth could top 3 per cent this year. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments. Estimates of the long-run sustainable unemployment rate were unchanged at 4.5 per cent.

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