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AS EXPECTED, THE FEDERAL RESERVE BANK RAISED RATES BY ANOTHER QUARTER POINT – JUNE 14, 2018

“From the Desk of Michael Sheldon”

As expected, the Federal Reserve Bank (through the Federal Open Market Committee or FOMC) raised its target range for the short term federal-funds rate by 25 basis points of one quarter point yesterday.  The new rate current stands in a range of 1.75% to 2.0%.  As part of the updated guidance, the central bank is now projecting four rate hikes this year (up from three previously), three rate hikes in 2019 (up from two previously) along with one additional rate hike in 2020.  The central bank continues to describe the Federal Reserve Bank’s policy stance as “accommodative,” although short-term rates appear likely to move somewhat above the Fed’s neutral level over the next several quarters.

In terms of the economy, the central bank commented that economic growth is currently “solid,” which is an improvement from “moderate” in March. The central bank upgraded their assessment of the U.S. economy somewhat and increased their 2018 GDP forecast, lifted their inflation expectations forecast a bit and lowered their forecast for the unemployment rate over the remainder of 2018.

Commentary from Fed Chair Jerome Powell appears a bit more “hawkish” than what we have heard at recent Fed meetings.  However, updated commentary really reflects a more upbeat assessment of the U.S. economy and the fact that the U.S. no longer needs the kind of emergency rates that have been in place since the last economic downturn.  As part of the Q and A period, the central bank downplayed concerns about trade tensions and recent events in Italy.  When asked why wage growth has not picked up more considering the unemployment rate is currently at such low levels, Fed Chair Jerome Powell stated that this remains a question, but that wage growth appears likely to continue to move higher as labor markets tighten further.

Overall, the central bank hopes to engineer a soft landing and gradually raise rates up to more normal levels associated with a growing healthy economy.  The central bank appears willing to allow inflation to rise somewhat higher than its target 2% level without panicking.  However, should wages, prices and various commodities start to rise significantly from current levels, that could lead the central bank to step up the pace of future rate increases.  As always, the central bank will likely remain data dependent, meaning if economic data shifts unexpectedly one way or the other, the central bank may change course.

 

Michael Sheldon, CFA

Executive Director & CIO

 

Ronald D. Weiner, CFP®

Managing Director & Partner

RDM Financial Group

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RDM Financial Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

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