U.S. Government Bonds Fall After Fed Raises Rates

U.S. Government Bonds Fall After Fed Raises Rates

(Kitco News) - Gold prices are holding steady just below the psychological barrier of $1,300 an ounce after the Federal Reserve suggested that it will hike interest rates more aggressively this year and the next as the US economy continues to grow.

Fed policymakers projected gross domestic product would grow 2.8 per cent this year, slightly higher than previously forecast, and dip to 2.4 per cent next year, while inflation is seen hitting 2.1 per cent this year and remaining there through 2020.

Most officials also expect the Fed will have to raise rates at least three times in 2019 and then at least once in 2020.

The Fed's latest projections show unemployment falling to 3.6 percent in 2018.

Fed Chairman Jerome Powell announced during a press conference that he will hold such briefings after every policy meeting instead of quarterly as from January 2019.

The Federal Reserve expects the USA gross domestic product to grow by 2.8% in 2018, up from March's forecast of 2.7%. Unemployment, now at an 18-year low of 3.8 percent, would drop to 3.6 percent by year's end and to 3.5 percent in 2019 and 2020 - levels not seen in 49 years.

This marks the seventh time the Fed has hiked rates since 2015, per Reuters, and is part of a slow process to return rates to normal levels.

'We save a fortune by not doing war games'
Opposition Leader Bill Shorten agreed the summit was a positive step forward, "even if some of the images were certainly unusual". Forces in Korea are still moving ahead with plans for the annual exercise known as Ulchi Freedom Guardian.

Consumers can expect interest rates to rise for all types of debt.

The ongoing economic expansion coupled with solid job growth has pushed the Fed to raise rates seven times since late 2015, rendering the language of its previous policy statements outdated. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher.

The decision to raise rates comes as the USA unemployment rate hovers at 3.8% - the lowest rate in almost two decades - and inflation, which lagged the Fed's 2% target for years, shows signs of starting to pick up.

Opinion was more divided about 2019's increases, however, although the median outcome was in line with the Fed's own forecasts for three hikes.

Yields have been climbing this year, as markets position for a relatively more aggressive Fed amid inflation concerns. That reflects the fact that the U.S. recovery after the crisis has been stronger, and inflation is getting closer to the Fed's target.

While an improving economy is good for the job market and worker wages, it's bad for credit-card borrowers because it means higher interest costs. But if it miscalculates and overdoes the credit tightening, it can trigger a recession. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on USA imports, which some studies show could cost the US close to 200,000 jobs.

A global trade war would risk cutting into USA economic growth by depressing American export sales and raising inflation by making consumers and businesses pay more for imports. While Japan's central bank isn't expected to make any major policy shifts, anticipation is rising that the ECB may outline as early as this week plans to begin paring its bond-buying stimulus program as a prelude to ending them altogether.

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