Interest Rates and Economic Outlook in the United States

On Wednesday and Thursday, November 7 & 8, immediately following the midterm elections, the Federal Reserve’s Federal Open Market Committee (FOMC) held its seventh meeting of 2018. With the mandates of maximizing labor participation, maintaining inflation under control, and keeping the economy moving forward, the FOMC considers the macroeconomic situation of the country in order to implement monetary policy.

Interest Rates and Economic Outlook in the United States

After the two-day gathering, Federal Reserve Chair Jerome Powell announced that the FOMC had decided to maintain the target for the Federal Funds rate that it had set in September at a range between 2.0% and 2.25%. This restrained decision does not come as a surprise given that the FOMC has already increased the Funds Rate target three times during 2018 and that the decision was made immediately after a general election. Moreover, the FOMC is scheduled to hold one more meeting this year, during December 18 & 19, in which the members could announce (or not) a fourth interest rate hike for 2018.Even though the national economy of the United States has continued on a path of growth recovery and dynamism, there will be a divided government as of January 2019, which makes the economic outlook more uncertain. Nevertheless, it is important to remember that currently the interest rate is at its highest levels since the 2008 financial crisis, which gives the FOMC more leverage and monetary policy options in case of an economic slowdown or a possible liquidity trap.In its official statement, the FOMC highlighted continued jobs gains and a steadily low unemployment level as well as an increase in household spending and steady levels of business investment. Likewise, after remaining inconsistent and below target for years in the past, overall inflation has stabilized around its 2.0% long-term target, which is one of the policy mandates of the Federal Reserve. In the case of the stock market, the Dow Jones Industrial Average (DJIA) has continued to grow, from 20.660 points on March 22, 2017 to 22.350 points on September 22, 2017 and approximately 25.357 points on November 14, 2018.Overall, the economy of the United States is expected to grow by approximately 3.1% during 2018 and 2.5% in 2019. Furthermore, if this positive economic trend continues, the FOMC estimates that the Federal Funds interest rate will reach 2.4% by the end of 2018, 3.1% by the end of 2019, and 3.4% by the end of 2020. Similarly, the FOMC expects the Real Gross Domestic Product growth (inflation adjusted GDP) of the United States to reach 2.8% in 2018, 2.4% during 2019, and 2.0% in 2020.(Read more about Democrats Take the House, Republicans Win the Senate)