As expected, the Federal Open Market Committee (FOMC) ended its March 20–21 meeting by hiking short-term rates by 25 basis points. This was the first FOMC meeting chaired by Jay Powell, and the Federal Reserve is likely to increase the federal funds rate at least two (and maybe three) more times in 2018. The economic projections of the participants were consistent with two more rate hikes this year, with the midpoint of the federal funds rate rising from 1.625 percent now to 2.1 percent by year’s end. It is worth noting that the Federal Reserve’s current outlook is more aggressive than it was in December for the next two years. Respondents now see the federal funds rate increasing to 2.9 percent and 3.4 percent by year’s end in 2019 and 2020, respectively, up from 2.7 percent and 3.1 percent three months ago. As always, the actual pace of rate hikes will hinge on incoming data.

The acceleration of rate hikes likely stems from expectations of faster growth, especially after passage of tax reform and continued signs of strength in the global economy. In December, the Federal Reserve forecasted 2.5, 2.1 and 2.0 percent growth for 2018, 2019 and 2020, respectively. That outlook has risen for real GDP growth of 2.7, 2.4 and 2.0 percent in the latest survey. The FOMC also anticipates that the unemployment rate will fall to 3.8 percent in 2018 and 3.6 percent in 2019. The December projections called for 3.9 percent in both years.

In its accompanying statement, the FOMC noted that “The labor market has continued to strengthen and that economic activity has been rising at a moderate rate,” and it highlighted healthy gains in hiring, even with some slight softening in consumer and business spending. In particular, they said, “The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong.” While inflationary pressures have picked up recently, they are not a concern at this time.

There were no dissentions on the FOMC on its decision to raise short-term rates, with all eight voting members affirming the action.

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