The U.S. Federal Reserve gave strong indications Wednesday that it is likely to continue raising its benchmark interest rate as the American economy gains momentum.
On Wednesday, the U.S. central bank raised its key interest rate for the third time this year. The benchmark rate now stands at 2.25% versus 1.5% in Canada.
The latest interest rate rise had been widely expected and priced into markets. Of more interest were comments made by the U.S. Federal Reserve that indicate more interest rate hikes are coming. The statement from the Federal Reserve came with a clear signal that suggests more rate hikes are likely.
For several decisions in a row, the American central bank has included the line "the stance of monetary policy remains accommodative." The word "accommodative" has always been the bank's way of saying that it plans to keep interest rates to stimulate the economy. In Wednesday's announcement, that line was removed, suggesting that the central bank no longer plans to keep interest rates low.
As a press conference, U.S. Federal Reserve Chair Jerome Powell said that the central bank's monetary policy is now getting back to what he called "normal" after more than a decade of low interest rates.
"Interest rates are going up across a broad range of consumer borrowing," Powell said, while adding that rates are "still quite low by historical levels."
The U.S. central bank is now forecasting another interest rate increase in December of this year, three more in 2019 and possibly even one in 2020. That would put the benchmark U.S. rate at 3.5%. For comparison purposes, the Bank of Canada's benchmark interest rate sits at 1.5%, but that is also widely expected to rise to 1.75% by year’s end.
In its decision Wednesday, the U.S. Federal Reserve added that it sees the American economy long-run growth at a 1.8% annual rate —below the Trump administration's projections for 3% growth over the long-term.
