Fed Raises Rates, Longer-Term Rates Fall Amid Economic Growth Expectations

The Federal Reserve raised interest rates by one-quarter of a percentage point this week, but longer-term rates actually fell. The overnight federal funds rate and interest on reserves rate were both increased, while the 10-year Treasury yield and 30-year Treasury yield barely moved.

According to the Summary of Economic Projections, Fed officials expect more economic growth and lower unemployment. The median forecast for GDP growth was revised up from 2.2 percent to 2.4 percent next year, and even in 2028 and 2029, they see the economy growing above the long-term estimate of two percent.

The Fed's longer-run estimate of fed funds rate increased from 3.2 percent at the last meeting to 3.1 percent in March. This suggests that the natural rate of interest is increasing, and the Fed now thinks the fed funds rate should be 1.2 percentage points higher than the inflation target.

President Trump refused to attack the newly appointed Fed chair, Kevin Warsh, after the rate hike. Instead, he expressed confidence in Warsh's leadership, which was seen as a departure from the expected script.