US Fed signals one more rate hike this year

Source:Xinhua Published: 2017/9/21 12:13:41

US Federal Reserve on Wednesday kept the interest rate unchanged, but signaled that there might be one more interest rate hike this year.

The central bank also announced on the same day that it will start to unwind its 4.5-trillion-US-dollar balance sheet in October, as the market expects.

"We're working down our balance sheet, because we feel that's stimulus that in some sense is no longer needed," said Fed chairwoman Janet Yellen at a press conference after the Fed concluded its two-day policy meeting on Wednesday.

"The basic message here is US economic performance has been good," she added.

Although recent hurricanes are expected to give a shock to the US economy, the Fed continues to expect that the economy would expand at a moderate pace in the future.

According to the Fed's economic projections released on Wednesday, Fed officials expected the US economy to grow 2.4 percent this year, higher than their forecast of 2.2 percent in June.

Alongside the moderate economic expansion, the US job market has shown strong resilience in recent years.

The country's unemployment rate reached 4.4 percent in August, the lowest level since the Great Recession. The monthly job gains remained at a robust pace of 156,000 in August, above the pace of 100,000 to 120,000 that would be consistent with a stable unemployment rate.

Yellen pointed out that if the Fed didn't withdraw its monetary stimulus, the economy could overheat and the inflation could move up more rapidly, in view of the continued labor market tightening.

According to Fed officials' projections, the unemployment rate will drop to 4.3 percent by the end of this year, and further fall to 4.1 percent in 2018 and 2019, well below the 4.6 percent where the economy reaches full employment.

However, inflation, the other monetary policy mandate for the Fed, has been running below the Fed's 2-percent target for years, and it also softened this year.

"This year, the short fall of inflation from 2 percent ... is more of a mystery," said Yellen.

In July, the core personal consumption expenditure (PCE) index, the Fed's preferred inflation indicator, rose only 1.4 percent year on year, below Fed's 2-percent target and also lower than the 1.9 percent in January.

Yellen expected that the low inflation is due to transitory factors that are likely to disappear over the course of the coming year.

According to Fed officials' projections, the core PCE index is expected to rise 1.5 percent this year and 1.9 percent next year, separately lower than the 1.7-percent and 2-percent forecasts in June.

Despite the soft inflation, Fed officials still expect that there could be one more interest rate hike this year, and three more hikes in 2018.

The Fed has raised interest rates twice this year, separately in March and June. The market now widely expects the Fed might raise interest rate again in December.

Adam Posen, president of the Peterson Institute for International Economics, told Xinhua that the effects of monetary tightening will be much fewer this time than in the past, as the global economy is in a better shape now, and households and corporations have much fewer debts.

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