Fed raises rates, Powell talks future plans

  • Fed raises rates, Powell talks future plans

Fed raises rates, Powell talks future plans

The central bank raised its key short-term rate by a modest quarter-point to a still-low range of 1.75 per cent to 2 per cent.

The Federal Reserve took note of a resilient USA economy Wednesday by raising its benchmark interest rate for the second time this year and signalling that it may step up its pace of rate increases. "The overall outlook for growth remains favourable".

It was the Feds seventh rate increase since it began tightening credit in 2015, and it followed an increase in March this year. Fed officials had been split about whether to raise rates three times this year or four.

The Fed now envisions stronger growth this year - 2.8 percent, up from the 2.7 percent it predicted in March.

When the Fed last met in May, it left its short-term rate unchanged. "The trajectory of USA inflation or the broader US economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments. The dollar.DXY pared some losses but was still trading lower against a basket of currencies.

Mr Powell said concerns about trade are rising and the bank has received anecdotal reports that the uncertainties are leading companies to hold off on investment and hiring. The Fed chief now holds four such events each year. The most immediately affected will be credit-card interest rates, which are subject to near-instantaneous revision to track the federal funds rate. 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.

The US Federal Reserve has voted to raise the target for its benchmark interest rate by 0.25%, citing solid economic expansion and job gains.

The Fed offered an improved forecast for unemployment this year, lowering its forecast to 3.6%.

The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective".

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 the economy enters a 10th straight year of growth.

Consumers can expect interest rates to rise for all types of debt. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does. Investors had given just over a 91 percent chance of a rate rise on Wednesday, according to an analysis by CME Group.

After keeping interest rates low for years to boost growth, the central bank is now moving rates back to what economists say is a neutral position. Interest rates on new fixed-rate mortgages could also climb.