Fed raises key rate, predicts 2 more hikes

Fed raises key rate, predicts 2 more hikes

In announcing the rate hikes, the FOMC said it found that the US economy has continued to grow moderately since the committee's last meeting in January.

In December, the "central tendency" of Fed officials' projections was for an interest rate target of between 2.4 percent and 3.1 percent at the end of 2019; that range has now shifted up to 2.8 percent and 3.4 percent.

In addition, he said "ongoing job gains are boosting incomes and confidence, [and] foreign growth is on a firm trajectory".

The policy move leaves central bankers with room to assess whether they will need to raise rates faster to prevent the economy from overheating. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Investors will be assessing how effective Powell is as a communicator.

Some even anxious inflation could rise well above the Fed's target if the economy got too hot.

Powell justified the Fed keeping its inflation forecast the same by noting that price pressures have been weak for years.

"A number of participants in [the] FOMC did bring up the issue of trade", Powell said on Wednesday, adding that participants have been approached by members of the business community who have expressed fears of more widespread retaliation.

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'While we do not see today's decision as hawkish, it reinforces our long-held view that the burden of proof for the Federal Reserve not to raise rates gradually is high as the unemployment rate falls.

Federal Reserve officials met for the first time under new Fed Chairman Jerome Powell this week. The quarter-point increase was hardly a surprise. CD rates and money market rates haven't done much better. As NPR's John Ydstie reports, the Fed also signaled interest rates could rise faster.

The Fed's forecast for 2018 is 2.7%, compared with 2.5 per cent in its December outlook, and 2.4% next year compared with 2.1% previously. Fiscal policy has become more stimulative. They saw rates at 3.4% in 2020, up from 3.1% in December, according to the median estimate. Unemployment was expected to dip to 3.9 percent this year and next before returning to 4 percent. The 2020 gross domestic product growth median projection was also unchanged at 2%.

The Fed policy rate dot plot continues to suggest two more rate hikes in the current year. If it raises rates too quickly now, he said, the Fed could stifle growth.

"Against this backdrop, inflation remains below our two per cent longer-run objective". "It's not something we observe at the present", Powell said. But Powell was less of a cheerleader for wage growth than his predecessor, Janet Yellen.

As the additional stimulus is likely driving more Americans into an already tight labor market, inflation is also predicted to edge higher.

In the press conference, the Fed Chair was cautious. This is the interest rate at which banks and credit unions lend reserve balances to other depository institutions for overnight loans. The vote to increase the rate Wednesday was a unanimous 8-0. Before that, the benchmark rate was kept near zero to boost the economy after the Great Recession.

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