Fed hikes rates for third time in 2017 under Yellen

The Federal Open Marker Committee voted to increase overnight interest rates in the December 12-13 policy meeting by 25 basis points to a range of 1.25% and 1.50%, matching market expectations, while reiterating its tightening path and intention to hike rates three times in 2018. 

FOMC members pointed to the data available to the Committee since the November meeting, as the labor market kept improving while economic activity accelerated, as labor gains tightened a bit while remaining solid in the medium term, and the unemployment fell sharply, despite recent disrupting hurricanes.  

Members said household spending rose in recent months, as fixed-rate investments stabilized, while inflation gauges in the last 12 month moved away from the bank's long-term 2% target, while still below that target when excluding energy and food prices.

Members asserted the Committee's commitment to boost job opportunities and stabilize prices, noting that recent hurricanes Harvey, Irma and others led to widespread destruction and hardship for many people, with the impact having only transient impact on economic growth in the short term. 

Inflationary pressures are still expected to steady below 2% in the medium term, while considering short-term risks as roughly balanced, as the Committee continues to monitor inflation gauges and global economic and financial developments closely. 

The dollar index, tracking the greenback against a basket of currencies, fell to 93.69 from the opening of 94.10, with an intraday high at 94.11, and a low at 93.65.

Similarly, members said that taking into consideration the labor conditions and current inflation rates, the Committee decided to increase interest rates to a range of 1.25% to 1.50 percent, while keeping the monetary policy accommodative, offering further support to the labor sector and nudging inflation firmly towards 2%. 

The Committee said it's assessing the current and projected economic conditions, with an eye towards achieving its targets of full employment and 2% inflation, while taking into consideration a wide group of data and economic information, including the labor market conditions and inflation indices. 

Members expect the economic conditions to develop in a way that allows for gradual tightening of the policy, with a path that ends just below the projected interest rates levels in the long term, while reaffirming that the actual path of short-term overnight interest rates depends on aforementioned economic projections and data. 

Otherwise, the Committee is carrying on its current policy of reinvesting its holdings of debt, mortgage-backed securities, and treasury bills and selling them in public auctions to trim them down from their current high levels in the long term, and in order to keep the financial conditions accommodative.

The FOMC is continuing the process of normalizing the balance sheet starting from October to cut down on high levels of debt and mortgage-backed securities held by the Federal Reserve, as all the members agreed on the principles of normalizing the policy through the steps detailed in the additional document submitted alongside the usual bank statement in this meeting. 

The Committee announced previously its plan to cut its monetary holdings gradually by reinvesting them through the open market system, while expecting the treasury bill sales to reach $6 billion at the start of the process, while rising to $30 billion a month in 12 months.

As for mortgage-backed security sales, they will start at $4 billion and advance to $20 billion a month after a year of the process. 

The Committee said that gradual cuts in the bank's debt holdings will trim down the reserve balance to way below recent years, while still remaining above the levels seen before the global financial crisis. 

Members are aiming to change the targeted range for federal money as the main way to change the policy, while standing to downgrade their interest rate target in case economic conditions deteriorated.

Finally, the Committee asserted it stand ready to use all the tools available to it to increase the balance sheet again if conditions called for heavy easing policies that couldn't be satisfied only with cutting interest rates on federal money. 

In her post-meeting speech, Chair Janet Yellen said that the tax reform bill will support the pace of growth, while noting that improved level of household spending and participation in the labor market as indicators of stronger economic performance. 

Yellen said the FOMC still expects the economy to strengthen enough to allow for gradual rate hikes, while noting that the view of current weak inflation is only temporary, as prices are expected to bounce as the economy tightens. 

Yellen said the economic outlook remains uncertain to some degree, and that the Fed is ready to reinvest its assets in case conditions called for it, while adding she'll do all in her power to facilitate the shift of her position to the new Chair Jerome Powell.