The US Fed is raising its rates

The Federal Open Market Committee raised the target range for the federal funds rate to 1.7 to 2 per cent. Furthermore, the Fed also suggested that there would be another three rises this year, followed by another three next year. It seems that the US Fed is accelerating its pace to raise its rates.

The US Federal Reserve believes that the US economic growth will continue to last for another several years. Such belief is understandable, because of the current low unemployment rate and the steady economic growth happening in the US economy. However, how likely is such economic growth to last for long?

Firstly, once the US Fed decides to raise rates, it could potentially slow down the economic growth, as it will increase the transaction cost and make investment and borrowing less attractive. Secondly, the current US unemployment is already very low, it means there is very little room to further reduction of unemployment left. Of course, when the unemployment rate is really low, the wage level is likely to increase faster, as there could be an excess of demand for labours. Thirdly, the US economic future might not be so assuring, given the trade war that the US president Trump has brought the US into.

To conclude, I do not think that the US Fed will increase its rates as many as another six times by the end of next year, since I do not have complete confidence about the future of the US economy.