Fed Chair: The economy is doing very well

The Federal Reserve lifted its benchmark rate for the second hike this year. Watch Fed Chairman Jerome Powell explain why.

Posted: Jun 14, 2018 9:27 AM
Updated: Jun 14, 2018 9:27 AM

Interest rates are going up again as the economy gets hotter.

The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year.

And a majority of policy makers said they now expect a total of four interest rate increases this year. Fed officials had been split about whether to raise rates three times this year or four.

The decision reflected an economy that's getting even stronger. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher. The Fed is raising rates gradually to keep the economy from overheating.

"The main takeaway is that the economy is doing very well," Fed Chairman Jerome Powell said at a news conference. "Most people who want to find jobs are finding them, and unemployment and inflation are low."

Related: Unemployment rate matches lowest point in half a century

The Fed lifted the federal funds rate, which helps determine rates for mortgages, credit cards and other borrowing, to a range of 1.75% to 2%.

"By just tapping the brakes more quickly, but not harder, the Fed is showing it's willing to let the economy and the expansion run," said Robert Frick, corporate economist with Navy Federal Credit Union.

Higher borrowing costs

Mortgage rates have been climbing. The average rate on a 30-year fixed rate mortgage climbed to 4.66% this year in May, the highest in seven years, before falling slightly in recent weeks.

Home mortgage rates tend to move with the bond market, but rates can also rise because of a higher federal funds rate. A higher rate makes it more expensive for banks to borrow money, which can translate into higher borrowing rates for consumers.

In the bond market, too, investors are showing signs of concern about higher inflation and faster rate hikes. The yield on the 10-year Treasury note recently hit the highest level in almost seven years.

The Fed's decision Wednesday was driven by "indications that inflation is right around the corner," said Jason Reed, an economist and finance professor at the University of Notre Dame's business school.

Inflation has been mysteriously low during the long economic recovery. But it has finally passed 2%, the level the Fed considers healthy.

The Fed's preferred measure of inflation, which strips out food and energy prices, climbed in May to 2.2% and registered the biggest annual jump in six years. The Fed expects inflation higher than 2% over the next two years, according to its latest projections.

Powell said the Fed would be worried if inflation either persistently overshoots or undershoots the 2% target. He pointed out that inflation can "bounce around" over time, especially with a spike in global oil prices likely to raise prices.

An ever-improving economy

Fed officials have begun to debate publicly how close the economy is to overheating.

On Wednesday, they offered an improved forecast for unemployment this year, lowering their forecast to 3.6%. They forecast an even lower unemployment rate of 3.5% for 2019 and 2020.

Employers have added jobs every month for seven and a half years, a record. And for the first time in at least 20 years, there are more job openings in the United States than there are people looking for work.

Powell said it's been a "bit of puzzle" why wages haven't risen faster, but he expressed optimism that American workers will see fatter paychecks as more go back to work.

"Most people who want to find a job can find one," he said. "I think overall we have a really solid economy on our hands here."

Changing trade policy 'a risk'

Powell said Fed officials are picking up concerns from business leaders about changing US trade policy.

The Trump administration recently imposed steel and aluminum tariffs on Canada, Mexico and the European Union, and it is preparing tariffs against China.

Related: Trump hits allies with metal tariffs

"I think it's fair to say you're beginning to hear reports of companies holding off on making investments and hiring people," he said.

Powell declined to comment on any specific policy, but he said Fed officials around the country are reporting concerns from businesses.

"Right now we don't see that in the numbers at all. The economy is very strong," he stressed. "I would put it down as more of a risk."

Powell also announced that he plans to hold press conferences eight times a year, up from the current four. The change, which will take effect in January, will offer investors and the public more insight into the Fed's deliberations and its view of the economy.

— CNNMoney's Matt Egan and Kathryn Vasel contributed to this report.

Terre Haute
Cloudy
69° wxIcon
Hi: 72° Lo: 44°
Feels Like: 69°
Robinson
Cloudy
67° wxIcon
Hi: 72° Lo: 45°
Feels Like: 67°
Indianapolis
Cloudy
69° wxIcon
Hi: 72° Lo: 45°
Feels Like: 69°
Rockville
Cloudy
67° wxIcon
Hi: 72° Lo: 44°
Feels Like: 67°
Casey
Cloudy
66° wxIcon
Hi: 68° Lo: 47°
Feels Like: 66°
Brazil
Cloudy
69° wxIcon
Hi: 73° Lo: 44°
Feels Like: 69°
Marshall
Cloudy
69° wxIcon
Hi: 70° Lo: 42°
Feels Like: 69°
Clouds move in today with showers possible this evening.
WTHI Planner
WTHI Temps
WTHI Radar

WTHI Events

 

Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Cases: 1363409

Reported Deaths: 24725
CountyCasesDeaths
Cook54578510114
DuPage906281281
Will75577990
Lake67248988
Kane58414774
Winnebago33247475
Madison30525520
McHenry28604288
St. Clair27862514
Peoria23136315
Champaign20649145
Sangamon18762234
McLean18167179
Tazewell16959288
Rock Island14994317
Kankakee14193210
Kendall1306094
LaSalle12553243
Macon10762199
DeKalb9874119
Vermilion9653132
Adams8466123
Williamson7433130
Whiteside7165172
Boone670773
Ogle611481
Grundy589375
Clinton576090
Coles568795
Knox5565145
Jackson502764
Henry498167
Livingston482585
Stephenson475983
Woodford475176
Effingham472972
Macoupin470282
Marion4472115
Franklin445075
Monroe435793
Jefferson4296120
Lee416952
Randolph413184
Fulton392756
Morgan390382
Logan388058
Bureau372082
Montgomery372074
Christian366773
Perry317560
Fayette317455
Iroquois302266
McDonough285647
Jersey268950
Douglas258835
Saline256454
Lawrence240525
Shelby229837
Union226040
Crawford212026
Bond205024
Cass199225
Jo Daviess181524
Clark179833
Warren179846
Pike179152
Ford178647
Wayne177553
Hancock176032
Carroll175436
Richland175040
Edgar170440
White169726
Washington164525
Moultrie161028
De Witt151324
Mason151045
Piatt149814
Clay148143
Mercer147033
Johnson144415
Greene143733
Wabash134512
Massac134340
Cumberland129019
Menard123612
Jasper115018
Marshall107318
Hamilton83315
Schuyler7587
Brown7066
Pulaski6877
Stark63823
Edwards57112
Henderson52514
Calhoun5182
Putnam4823
Scott4791
Alexander46811
Gallatin4584
Hardin38612
Pope3224
Out of IL40
Unassigned02356

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Cases: 733591

Reported Deaths: 13466
CountyCasesDeaths
Marion1003871748
Lake54020975
Allen40829679
St. Joseph35898552
Hamilton35735408
Elkhart28745442
Tippecanoe22432219
Vanderburgh22342397
Porter18871310
Johnson18028381
Hendricks17283315
Clark13015191
Madison12725339
Vigo12482248
LaPorte12011214
Monroe11928170
Delaware10726187
Howard9959218
Kosciusko9451117
Hancock8325142
Bartholomew8085156
Warrick7792155
Floyd7677178
Grant7080174
Wayne7064199
Boone6722101
Morgan6596139
Dubois6162117
Marshall6083112
Cass5839105
Dearborn582178
Henry5767104
Noble563684
Jackson502773
Shelby493696
Lawrence4571120
Harrison436372
Gibson436292
DeKalb429685
Clinton428153
Montgomery425389
Whitley397439
Huntington393380
Steuben390057
Miami382668
Knox372690
Jasper370148
Putnam362360
Wabash354980
Adams341955
Ripley340270
Jefferson331581
White315654
Daviess298299
Wells291981
Decatur285692
Fayette281662
Greene280085
Posey271933
LaGrange268370
Scott267254
Clay260647
Washington241832
Randolph241481
Spencer232631
Jennings230649
Starke217854
Fountain213246
Sullivan212142
Owen202156
Jay196730
Fulton195640
Carroll189620
Orange184154
Perry184037
Rush173725
Vermillion169743
Franklin168435
Tipton163045
Parke146616
Blackford135132
Pike135134
Pulaski117145
Newton108334
Brown102641
Crawford101315
Benton99014
Martin89515
Warren82415
Switzerland7938
Union71110
Ohio57111
Unassigned0417