Published: Thu, June 14, 2018
Finance | By Kristine Clayton

Fed Raises Interest Rates, Signals Faster Hikes on the Way

Fed Raises Interest Rates, Signals Faster Hikes on the Way

The number viewing three or fewer hikes as appropriate fell to seven from eight.

The Fed last raised the benchmark in March, the sixth increase since December 2015, as it tries to keep the economy growing at a sustainable pace without fuelling inflation. The Fed is looking for interest rates to rise to 3.4% by 2020, unchanged from the previous forecast. The Fed had said its key rate "is likely to remain, for some time, below levels that are expected to prevail in the longer run". Other changes included referring to "further gradual increases" instead of "adjustments". At this point, there's been little evidence that wage or price inflation is accelerating.

"Most people who want to find jobs are finding them".

At a news conference, Powell sought to portray the Fed's actions as evidence mainly that the economy is doing well and not that the central bank is eager to accelerate its rate increases. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does. Risks to the economic outlook appear roughly balanced.

Here's the Fed's full statement: "Information received since the Federal Open Market Committee met in May indicates that the labour market has continued to strengthen and that economic activity has been rising at a solid rate".

Wednesday's decision - the sixth quarter-point increase in 18 months, raising the benchmark federal funds target rate to a range of 1.75 per cent to 2 per cent - was a unanimous 8-0.

Fed Chair Jerome Powell will discuss the decision at a 2:30 p.m.

Along with rising interest rate expectations.

Job growth has consistently outperformed in recent years, driving unemployment down to 3.8 percent in May, the lowest reading since 2000. US payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years. For 2020, the Fed foresees a median rate of 3.4 per cent.

"In view of realised and expected labour market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 per cent". Economic activity is projected to expand 2.4% in 2019, unchanged from the previous forecast; finally, the economy is expected to grow 2.0% in 2020, unchanged from the previous forecast.

Fed officials project gross domestic product increasing 2.8 percent this year, up from an earlier projection of 2.7 percent.

That index now is at 2 per cent but other measures of consumer and producer prices have accelerated, pushed by rising fuel prices, as well as metals prices that could be the result of the steep import tariffs President Donald Trump imposed.

The bank's preferred indicator of inflation, consumer spending figures, showed annual inflation rose 2% in April or 1.8% if energy and food were excluded. They signaled previously that they wouldn't overreact if inflation overshot the target, but they haven't said how much of an overshoot they will tolerate, or for how long.

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