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Federal Reserve hikes benchmark interest rate to as much as 2.5%

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The U.S. Federal Reserve is raising its key interest rate for the fourth time this year to reflect the U.S. economy’s continued strength but signalling that it expects to slow hikes next year.

The quarter-point hike, to a range of 2.25 per cent to 2.5 per cent, lifted the Fed’s benchmark rate to its highest point since 2008. The increase will mean higher borrowing costs for many consumers and businesses.

The statement the Fed issued Wednesday after its latest policy meeting said “some” further gradual rate increases are likely. But its updated forecast projects just two rate hikes next year, down from three the Fed had predicted in September.

The new forecast also reduces the long-run level for the Fed’s benchmark rate to 2.8 per cent, down from three per cent.

Markets react

U.S. stocks rapidly surrendered an early surge Wednesday afternoon as investors reacted to the announcement. Stocks had been sharply higher before the Fed announced the rate hike. The Dow Jones Industrial Average closed down 351 points at 23,323 after being up as much as 200 points before the rate announcement. That’s the lowest close for the Dow in more than a year, stretching back to Nov. 15, 2017.

The Fed has raised rates with steady regularity as the U.S. economy has strengthened. Wednesday’s was the Fed’s ninth hike since it began gradually tightening credit three years ago.

But a mix of factors — a global slowdown, a U.S.-China trade war, still-mild inflation, stomach-churning drops in stock prices — has led the Fed to consider slowing its rate hikes in 2019 to avoid weakening the economy too much. It’s now likely to suit its rate policy to the latest economic data — to become more flexible or, in Fed parlance, “data-dependent.”

The Fed has so far managed to telegraph its actions weeks in advance to prepare the financial markets for any shift. But now, the risks of a surprise could rise. Next year, Chairman Jerome Powell will begin holding a news conference after each of the Fed’s eight meetings each year, rather than only quarterly. This will allow him to explain any abrupt policy shifts. But it also raises the risk that the Fed will jolt financial markets by catching them off guard.

Economic barometers

Some analysts say the Fed may want to pause in its credit-tightening to assess how the economy fares in the coming months, given the headwinds it faces.

Contributing to this view was a speech Powell gave last month in which he suggested that rates appear to be just below the level the Fed calls “neutral,” where they’re thought to neither stimulate growth nor impede it. Powell’s comment suggested that the Fed might be poised to slow or halt its rate hikes to avoid weakening the economy.

Powell speaks at a news conference after the announcement. (Susan Walsh/Associated Press)

For now, most U.S. economic barometers are still showing strength. The unemployment rate is 3.7 per cent, a 49-year low. The economy is thought to have grown close to three per cent this year, its best performance in more than a decade. Consumers, the main driver of the economy, are spending freely.

After the two rates increases that the Fed now envisions for next year, it foresees one final hike by 2020, which would raise it benchmark rate to 3.1 per cent. By 2021, four Fed officials envision reversing course and actually cutting rates to help stimulate the economy.

By lowering the long-run estimate for its key rate from three per cent to 2.8 per cent, the Fed is signalling that it doesn’t need to tighten credit much further to prevent the economy from overheating. Its statement describes the economy as strong. But it did note potential threats by adding language to say it would monitor global developments and assess their impact on the economy.

Growth forecast adjusted lower

In its updated outlook, the Fed lowered its forecast for growth next year to 2.3 per cent from the 2.5 per cent it foresaw three months ago. It predicts two per cent growth in 2020. Those estimates are far below the Trump administration’s insistence that its tax cuts would help accelerate annual growth to 3 per cent in coming years.

Given the still-healthy U.S. economy, the Fed would normally keep gradually raising rates to make sure growth didn’t overheat and ignite inflation. But this time, the risks to the economy seem to be rising. From China to Europe, major economies are weakening. U.S. President Donald Trump’s trade conflict with Beijing could, over time, undermine the world’s two largest economies.

There are also fears that the brisk pace of U.S. growth this year reflected something of a sugar high, with the economy artificially pumped up by tax cuts and a boost in government spending. The benefit of that stimulus will likely fade in 2019, slowing growth to a more modest pace. And as U.S. interest rates have risen, loan-sensitive sectors of the economy, from housing to autos, have begun to weaken.

In addition, the Fed has been gradually shrinking the vast portfolio of Treasury and mortgage bonds it built up after the 2008 financial crisis. This process is thought to have had the effect of putting further upward pressure on borrowing rates for consumers and businesses.

Trump attacks

Economists appear unified in the view that whatever the Fed does, it won’t be influenced by the attacks Trump has made on the central bank and on Powell personally since the stock market began tumbling this fall. In a highly unusual move for a president, Trump has repeatedly and publicly denounced the Fed’s rate increases. At one point, the president called the Fed and its string of rate hikes this year “my biggest threat.”

This week, Trump fired off two tweets objecting to a likely rate hike. In one of them, he called it “incredible” that the Fed would consider raising rates again when “the outside world is blowing up around us.”

Powell, who was Trump’s hand-picked choice to be chairman, has stressed that the Fed will pursue its mandate of managing rates to maximize employment and stabilize prices, regardless of any outside criticism.

The central bank meets next on Jan. 30. Trading in investments known as Federal Reserve futures implies there’s about a 27 per cent chance of a hike that day.

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Independent Consultant Beginner – 6 Should Have Pieces Of It Technology And Software

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Prima Wireless Earbuds Reviewhttps://primawirelessearbuds.net/.

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What Make Sure You Really Know Right Anyone Decide To Travel

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When traveling with children advised plan your route in advance. Do a little research and see as relevant and fun places to stop such as parks, museums or other attractions. Once you take breaks every non-chemical hours so everyone maybe even including the children probably get out and stretch their legs.

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Majority of Canadian workers willing to take less pay for a workplace pension plan: survey

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A majority (70 per cent) of Canadians say they’re willing to forgo a higher salary in exchange for a workplace pension plan, according to a new survey for the Healthcare of Ontario Pension Plan by Abacus Data.

The survey, which polled more than 2,000 Canadian adults in April, signals an opportunity for employers to build back the post-coronavirus pandemic working landscape better by expanding access to good retirement plans — whether they’re defined benefit, defined contribution or group registered retirement savings plans, says Steven McCormick, senior vice-president of plan operations at the HOOPP.

According to the survey, a secure retirement remains of greater concern for Canadians than concerns about their health, debt load and job security. McCormick says this has been a consistent worry the HOOPP has seen in survey results over the past couple of years. Nearly half (48 per cent) of respondents said they’re very concerned about having enough money in retirement, while 31 per cent were highly concerned about their personal debt load and 26 per cent cited their job security. Close to half of respondents expressed high concerns for their physical (43 per cent) and mental (40 per cent) health.

In addition, the pandemic has harmed the finances of more than half (52 per cent) of Canadians’ surveyed and it’s had a particularly disproportionate affect on the finances of younger adults. Adults aged 44 and younger said they’re twice as likely (25 per cent) to have had their finances greatly harmed, compared to those over the age of 60 (12 per cent).

Generally, younger adults tend to work in roles that may have been impacted most by the pandemic, says McCormick, whether in service industries that were shut down or frontline health care that have been busy but don’t always come with access to a pension plan. “Affordability is an issue, so I think their worries increased during this time.”

And while almost half (46 per cent) of Canadians surveyed said they’ve saved more money than they would have since the onset of the pandemic, among these respondents, over half (52 per cent) didn’t put any of their savings toward their retirement. Overall, most (63 per cent) Canadians surveyed haven’t set aside or saved anything for retirement in the past year, a five-point increase since 2019.

McCormick says this may be due to uncertainty or hesitancy about whether people’s immediate needs outweigh longer-term needs. And with 55 per cent of respondents noting they were very concerned about the cost of day-to-day living, he adds that rising prices have fuelled insecurity and worries so people are creating their own emergency funds right now.

While there’s a segment of the population who’ve saved more and, for them, the pandemic has created wealth, he doesn’t see this as a common narrative in the survey data. “If you don’t have access to a workplace pension or the opportunity to have things like automatic enrolment, the uncertainty of the time may have you holding onto money,” says McCormick. “In Ontario, we’re more optimistic about the pandemic than we were maybe a month ago, but there are still people worrying about whether there’ll be a fourth wave.”

In addition, more than two-thirds (67 per cent) of respondents said a retirement crisis is looming and 65 per cent said saving for retirement is prohibitively expensive. It’s a common and shared dream for many people in looking forward to a secure retirement, says McCormick, noting for many, making that dream a reality remains elusive.

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