US Fed to continue gradual interest rate hikes in 2018

The US Federal Reserve expects three interest rate hikes this year on the expectation of a stronger economic outlook.

"The (Federal Open Market) Committee expects that the ongoing strength in the economy will warrant further gradual increases in the federal funds rate," said the semiannual Monetary Policy Report to Congress released by the US central bank on Friday.

The report was released before new Fed chair Jerome Powell's first congressional testimony scheduled for February 27.

It said, "The economic expansion continues to be supported by steady job gains, rising household wealth, favorable consumer sentiment, strong economic growth abroad, and accommodative financial conditions."

It noted that federal fiscal policies, including the 1.5-trillion-US-dollar tax cuts and increased budget spending for fiscal 2018 and 2019, would likely give a "moderate boost" to economic growth this year.

The report, by using the same Fed forecasts released in December, stated that Fed officials expect three interest rate hikes this year.

Despite the recent market turbulence, the Fed still holds that overall vulnerabilities in the US financial system remain moderate on balance.

However, it warned that valuation pressures continue to be elevated across a range of assets, including equities and real estate.

In public remarks, Fed officials have downplayed the impact of recent market volatility, saying they would stick to their forecast of a stronger growth outlook and gradual rate hike pace.

According to the minutes for Fed's policy meeting on Jan. 30 and 31, Fed officials have become more confident about the growth and inflation outlook, paving way for gradual interest rate hikes in the future.

A number of officials had marked up their forecasts for economic growth in the near term, in view of the accommodative financial conditions, big tax cuts and solid domestic and overseas economic data.

(ASIA PACIFIC DAILY)