Fed raises key rate and sees possible acceleration in hikes

Share

Fed raises key rate and sees possible acceleration in hikes

The U.S. central bank is expected to hike its key interest rate another quarter of a percentage point Wednesday.

The federal funds target rate, which is now between 1.75 and 2 percent, is the highest it's been in almost a decade, indicating that the nation's central bank has confidence the economy will continue to expand.

Fed officials also said they expect to raise rates twice more this year, faster than previously forecast.

The Fed move came after a two-day meeting where its members discussed the robust state of the USA economy and the potential impact of a trade war amid rising tension between the U.S. and its largest trading partners. It's the second rate hike under Powell, a Republican appointed to lead the Fed by President TrumpDonald John TrumpWhat you need to know about Tuesday's elections Danny Tarkanian wins Nevada GOP congressional primary Laxalt, Sisolak to face off in Nevada governor's race MORE. The dollar.DXY pared losses against a basket of currencies.

Powell also announced the central bank would start holding news conferences after every policy meeting next year, which means a total of eight in 2019.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as a sturdy economy enters a 10th straight year of growth.

The federal government drastically upgraded its forecasted 2018 economic outlook Wednesday, saying the U.S. economy was rising at a "solid" rate; an increase from its previous prediction of "moderate" growth.

The unemployment rate, now at an 18-year low of 3.8 percent, is expected to fall to 3.6 percent this year, compared to the 3.8 percent that the Fed projected in March.

"Household spending has picked up while business fixed investment has continued to grow strongly", the Fed said. With the economy now nine years into an expansion, the move reflects the steadiness of growth, the job market's strength and inflation that's finally nearing the Fed's target level.

Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory.

The Feds meeting this week is to be followed by policy meetings of two other major central banks — the European Central Bank on Thursday and the Bank of Japan on Friday. "Economic activity has been rising at a solid rate". Rates for vehicle loans and variable-rate mortgages are also likely to increase. Investors had given just over a 91 percent chance of a rate rise on Wednesday, according to an analysis by CME Group. The step was needed, the Fed said, to be sure rates stay within the intended boundaries.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said before the Fed made its announcement that policymakers are "scared of future inflation risk".

Share

Advertisement

© 2015 Leader Call. All Rights reserved.