Fed Hikes Rates, But Longer-Term Outlook Remains Uncertain

The Federal Reserve raised interest rates by one-quarter of a percentage point as expected. However, longer-term rates, such as those on the 10-year Treasury yield, barely moved.

In fact, the 10-year Treasury yield closed at 4.9470 percent, only slightly higher than its previous close of 4.9750 percent. Similarly, the yield on the 30-year Treasury dipped from last Friday's close of 5.354 percent to 5.328 percent.

The longer-run estimate of the fed funds rate, which is a key indicator of the Fed's inflation expectations, rose to 3.2 percent in March and remained there until this summer. This suggests that the Fed believes the natural rate of interest should be higher than previously thought.

Additionally, the Summary of Economic Projections showed that Fed officials now expect more economic growth and lower unemployment. The median forecast for GDP growth was revised up to 2.4 percent next year, and the near-term projections also improved. For the first time in history, no Fed officials see downside risk to their growth projections.