-Fed raises rates for third time this year
The U.S. economic agenda for the week of Sept. 24-30 was dominated by the interest rate decision and economic projections made during the September meeting of the U.S. Federal Reserve.
The Fed announced Wednesday that it raised the benchmark interest rate by 25 basis points from 2 percent to 2.25 percent, marking the third increase this year. The move was widely expected by the markets and did not cause any large fluctuations.
The bank also officially confirmed that its monetary policy is no longer “accommodative” - a long-standing phrase that was removed from the post-meeting statement.
However, Fed Chair Jerome Powell stressed in a press conference after the meeting that the change does not mean a change in the pace of future rate hikes.
-Fed signals more rate hikes
As the financial markets already priced in the Fed's rate decision, investors focused on the update for a summary of economic projections.
According to the new projections, the Fed members expect interest rates to reach 2.4 percent by the end of the year, which points to another hike in the next few months. The central bank foresees rates reaching 3.1 percent by the end of next year, which suggests another three rate hikes in 2019.
The Fed officials collectively raised their growth expectations for this year. They now expect the U.S. economy to grow by 3.1 percent this year, an upward revision from the 2.8 percent projection in June. In addition, 2019’s expected growth, which was announced as 2.4 percent in June, was increased to 2.5 percent. The bank kept its 2020 estimate constant at 2 percent.
Fed's unemployment rate projections showed that the median forecast for the end of 2018 was raised from 3.6 percent to 3.7 percent. Bank officials continued to predict that the unemployment rate would decline to 3.5 percent in 2019 and remain at this rate in 2020.
The median estimates of the core Personal Consumption Expenditures (PCE) price index remained unchanged at 2 percent for this year and 2.1 percent for the next two years.
Personal income and the outlay report released on Thursday featured in last week’s data calendar.
According to the U.S. Department of Commerce data, personal spending increased by 0.3 percent in August, marking the lowest monthly rise in the last six months, after an unrevised 0.4 percent gain in July. The data, which accounts for more than two-thirds of U.S. economic activity, was in line with market expectations.
Personal income increased by 0.3 percent in August, matching last month’s increase. However, the market forecast for personal income was a 0.4 percent rise.
In August, the Personal Consumption Expenditure (PCE) price index increased by 0.1 percent month-on-month, as expected, while falling from 2.3 percent to 2.2 percent year-on-year.
The core PCE price index remained stable in August, missing the expected 0.1 percent rise. However, the yearly core came in as expected and on the Fed's target at 2.0 percent.
Meanwhile, the growth rate of the U.S. economy for the second quarter of this year was held stable at 4.2 percent.
- week ahead: Fed messages and employment
In the first week of October, the markets will look to the Fed Chair’s speeches and the employment data.
The week's economic agenda including other items are as follows:
- Monday, Oct. 1
Markit manufacturing PMI, ISM manufacturing index, and construction spending will be announced.
- Tuesday, Oct. 2
Jerome Powell will deliver a speech on employment and the inflation outlook.
- Wednesday, Oct. 3
ADP private sector employment, Markit service, compound PMIs, and non-manufacturing ISM Index will be announced.
Powell will also participate in an open press interview.
- Thursday, Oct. 4
Weekly unemployment claims and factory orders will be announced.
- Friday, Oct. 5
Employment data (non-farm employment, unemployment rate, average hourly earnings, labor force participation rate etc.) will be announced along with trade balance and consumer credits.