Well, the Fed went ahead and did it. For the second time this year, the nation’s central bank hiked up key interest rates. However, this was widely anticipated, so it wasn’t that big of a deal on Wall Street.
It was another minor hike; the Fed raised the benchmark interest rate by 25 basis points to a range of 1.75% to 2.00%.
The Fed also suggested that there would be further rate hikes in 2018. The Fed is now forecasting a total of four rate hikes, which would imply another two rate hikes this year. Then again, the Fed doesn’t have the best track record in following through with its predictions, so we’ll have to wait and see.
The benchmark indices remained largely unchanged after the announcement, as investors largely expected the move. After all, by raising rates the Fed is acknowledging that the economy is improving further. And the latest Consumer Price Index (CPI) report suggests that inflation is heating up, so the rate hike makes all the more sense.
Yesterday, Labor Department revealed that the CPI rose 0.2% in May. The main culprits were rising gasoline prices, as well as higher costs for medical care and housing. Excluding food and energy, the core CPI also jumped 0.2% in May.
The CPI is now running at a 2.8% annual pace, up from a 2.5% annual pace in April. To put this into perspective, this is the fastest rate since 2012. Meanwhile, the core CPI is now running at a 2.2% annual pace in the past 12 months. So inflation at both the wholesale and consumer level is near the Fed’s target of 2% inflation.
For now, there are no complaints from Wall Street. Interest rates still remain historically low, and given some of the currency crises occurring around the world, the U.S. stock market remains an oasis for many investors. I’ll continue keeping a close watch on the Fed and market rates, and keep you updated through this daily blog.