Fed Raises Rates – and Starts a Trend?
The U.S. Federal Reserve raised interest rates a quarter point on Wednesday and remained committed to gradually tightening monetary policy in light of its expectation for economic growth this year and next. Interest rates are now in a range of 2 to 2.5 percent, a rate last seen in April 2008. The rate hike was unexpected, and it marked the eighth hike since December 2015. In a statement following its two-day policy meeting, the Fed noted the end of its “accommodative policy” and signaled its path towards a neutral rate. Fed Chairman Jerome Powell said that the removal of the word “accommodative” did not change the central bank’s policy outlook, even though that term had been part of the Fed’s lingo for much of the past decade. The Fed expects one more rate hike before the end of 2018, three more in 2019 and one in 2020. U.S. President Trump has been openly critical of the Fed for raising interest rates and has called on the central bank to do more to help boost the economy.
Other central banks will be releasing statements today, with Indonesia and the Philippines expected to follow the Fed’s move higher. The Philippines’ central bank, Bangko Sentral ng Pilipinas (BSP), is expected to raise rates by 50 bps to 4.5 percent later today to help curb inflation and to support its struggling peso. Indonesia’s central bank, Bank Indonesia, is expected to raise rates 25 bps, to 5.75 percent. India’s central bank, Reserve Bank of India, will be releasing its statement next week, and is also widely expected to raise its interest rates.
Still, the Fed’s move will not have a significant impact on stronger Asian economies, many of which are looking to align themselves more with China and to move away from their U.S.-ties in light of the U.S.-Sino trade war. South Korea and Taiwan are both expected to keep their interest rates stable in their announcements later today. New Zealand has already demonstrated this shift, with its Chinese trade now roughly double its trade with the U.S. The country’s shift wasn’t entirely based on the trade war, however; it has been occurring over the past two decades as Beijing’s economy has grown.