This article originally appeared on the Motley Fool.
The Federal Reserve just approved the second interest rate hike of 2017, and the third in the past six months. Inflation is shaping up to be lower than the Fed had hoped to see, but GDP growth and employment projections for 2017 were both improved from those made after the March Fed meeting. Here are the highlights from June’s Federal Reserve meeting, and what this rate hike could mean to you.
The headline news: The Fed hikes interest rates, again
In its second rate hike of 2017, the Federal Reserve raised the target Federal Funds Rate to 1.00%-1.25%, a 25-basis point increase over the previous level. Only one committee member (Neel Kashkari) dissented from the vote.
The Fed also indicated that it anticipates one more rate increase in 2017, and three in 2018, which is in line with its previous expectations.
Mixed economic data
The committee’s statement said that inflation has declined recently, although household spending has picked up in recent months. 2017 inflation is now expected to be 1.6%, short of the Fed’s 2% target, and 30 basis points less than the 1.9% inflation rate projected in the committee’s March 2017 statement. Core inflation (which excludes food and energy costs) is projected to be a slightly higher 1.7% for the year.
The inflation forecast for 2018 and 2019, however, hasn’t changed. The committee still expects to see a 2% inflation rate in both years.
Unwinding the balance sheet
The Fed had previously indicated that it intends to start unwinding its massive balance sheet, and its latest statement shed some light on how that may happen. Although specific starting point wasn’t provided, the Fed did say it is expected to begin this year.
The Fed will start shedding Treasuries at the rate of $6 billion per month, and will increase that pace by $6 billion per month every quarter for a year, at which point the…