Demonstrating continued confidence in the economy, the Federal Open Markets Committee raised the federal funds rate by a quarter point for the fourth time this year.
At a news conference Wednesday following the committee's two-day meeting, Federal Reserve Chairman Jerome Powell cited strong labor market conditions and stable inflation as reasons the committee raised the target range for the federal funds rate to 2.25% to 2.5%.
But FOMC members reduced the number of projected rate hikes in 2019 to two from three. Now, they project, on average, the federal funds rate to rise to 2.9.% by the end of 2019 and 3.1% by the end of 2020.
In September, they projected a rise to 3.1% by the end of 2019 and to 3.4% by the end of 2020.
"Neither the pace nor the ultimate destination of any further rate increases is predetermined," Mr. Powell said Wednesday. "We will adjust monetary policy as best we can to keep the expansion on track, the labor market strong and inflation near 2%."
Mike Collins, senior portfolio manager at PGIM Fixed Income, wasn't surprised by the FOMC's rate hike nor its scaled back projections for 2019. "It's recognition that the economy, globally and in U.S. to some extent, is slowing on the margins," he said. "It's also a recognition that the global economy and the U.S. economy can't handle a 3.5% funds rate. That's just too much pressure; that's too tight of a monetary policy."
Bob Baur, chief global economist at Principal Global Investors, said in a statement that the Fed may be underestimating certain factors. "Trade has been making headlines, but I think a gradual tightening of monetary policy has been the driving force behind recent market volatility," he said. "With corporate borrowing and spending still high, and the Fed continuing to reduce its balance sheet, I'd expect volatility to remain if this tightening continues."
In a statement, Roger Aliaga-Diaz, Vanguard's chief economist, Americas, said Vanguard is pleased with the quarter-point rate increase, along with the revision in the number of expected rate hikes for 2019. "We believe the Fed has appropriately balanced the strong fundamentals of the U.S. economy with the financial market volatility and related concerns of the global economic outlook," he said.
The FOMC also reduced its forecast for U.S. GDP in 2018 to 3% from 3.1% and in 2019 to 2.3% from 2.5%.
"In early 2018 we saw a rising trajectory for growth," Mr. Powell said. "Today we see growth moderating ahead."
