No surprise here: The Federal Reserve raised its benchmark short term interest rate by 25 basis points to 2% today from 1.75%. It was the second interest rate increase of 2018.
But the Fed also signaled that it was more likely to raise rates two more times in 2018 for a total of four increases, rather than the three total rate increases signaled at the Fed’s March meeting. The Fed’s Dot Plot summary of Fed sentiment moved to eight members in favor of four interest rate increases in 2018 from seven in March. The number of Fed policy makers looking for three or fewer increases in 2018 fell to seven from either in March.
The Fed made other changes in its forecast as well. The central bank is now looking for the official unemployment rate to fall to 3.6% by the end of 2018. In March the Fed had forecast that unemployment would fall to 3.8% by the end of the year. Unemployment hit that 3.8% level in May.
The Federal Reserve also raised its forecast for U.S. economic growth in 2018 to 2.8% from a 2.7% forecast in March. Fed chair Jay Powell said the Fed didn’t see any economic slowing so far from the tariff tussle between the United States and its trading partners.
The yield on the 10-year Treasury rose 1 basis point today to 2.97%. The yield on the 2-year Treasury, which is move responsible to changes in Federal Reserve policy hit 2.57%. In the last year the yield on the 10-year Treasury is up 76 basis points while the yield on the 2-year Treasury has climbed 121 basis points
