The Federal Reserve raised its benchmark interest rate a quarter point, as expected, to a 2 percent to 2.25 percent target range. Another move in December can be expected, and the median projection still calls for three increases in 2019.

If all that comes out as the Fed now expects, 15 months from now, the fed funds rate will be above the 3 percent level that policy makers consider the long-run neutral rate.

Fed Chair Jerome Powell has made it clear that he’s going to keep raising until the economic data suggest otherwise.

Investors could do well taking note that because of what we know today, the Fed is apparently trying to engineer a “soft landing,” given that from the end of 2019 through 2021 the “dot plot” signals just one more rate increase.

Powell said in his press conference that the Trump administration’s fiscal stimulus was boosting the economy now, and that’s partly why the Fed expects 3.1 percent growth this year, up from 2.8 percent. But in the long term, the Fed’s growth outlook is unchanged at 1.8 percent.

All this explains why shorter-term yields are the highest in a decade, but the 10-year Treasury yield slipped and is now yielding around 3.04 percent after reaching 3.11 percent on Tuesday. It touched 3.126 percent in May, which was the highest since 2011.

If President Donald Trump’s policy of putting tariffs on trade were to cause a significant economic slowdown, then a further December rate hike would be called into question. If the slowdown caused by the tariffs is spread out over some time, then the slowdown would probably not be enough to cause the Fed to pause in December.

Speaking at a press conference in New York, Trump was not applauding the Fed’s decision to raise interest rates on Wednesday saying: “Unfortunately they just raised interest rates a little bit because we are doing so well. I’m not happy about that. I’d rather pay down debt or do other things, create more jobs. I’m worried about the fact that they seem to like raising interest rates, we can do other things with the money.”

Growing Tensions Between the U.S. and China

During a Q&A session yesterday in New York, Trump claimed that China was "meddling" in November’s midterms saying: “Regrettably we find China has been trying to interfere in our upcoming 2018 election and against my administration. They do not want me, or us, to win because I am the first president ever to challenge China on trade. And we are winning on trade. We are winning on every level. We don’t want them to meddle or interfere in our election.”

Trump also said that he and Chinese President Xi Jinping might not be friends anymore as a result.

That remark signals a further deterioration in ties, feeding fears that the U.S. and China could be heading toward a longer-term confrontation that could have widespread geopolitical ramifications.

Interestingly, today, and after Washington approved this week a new $330 million military sale to Taiwan, which China still considers as one of its provinces. Ren Guoqiang, a Chinese defense ministry spokesman, when speaking to reporters he reiterated China’s opposition to U.S. arms sales to Taiwan, also adding President Xi’s government had a problem with the “nature” of the sales and not the “quantity”.

When asked about the latest round of U.S. sanctions on some $200 billion worth of Chinese goods, Ren Guoqiang said the U.S. should “solely be blamed for the current problems and bear the full consequences. We demand that the U.S. side take a reasonable and mature attitude and act with sincerity, taking concrete actions to improve bilateral military to military relations.”

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.