Federal Reserve Raises Key Interest Rate and Signals More Increases May Come

Federal Reserve expected to hike rates as Sterling slips

Federal Reserve expected to hike rates as Sterling slips

The higher rates should be a boon for savers, while increasing borrowing costs for households and businesses throughout the economy.

Interest rates are going up again as the economy gets hotter.

Announcing the decision to increase its target for the fed-funds rate to a range of 1.75% to 2%, the Fed described the U.S. jobs market as "strong" and said economic activity had been rising at "a solid rate". The Fed had previously 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".

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

The Fed also signaled that it will raise rates more this year than previously expected - four times rather than three. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does.

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"Economic activity has been rising at a "solid" rate, the Fed's statement said, marking an upgrade from "moderate" in the previous statement".

The US Federal Reserve raised the benchmark lending rate on Wednesday, the second increase of the year, and signalled it will be more aggressive about rate increases this year and next amid "strong" economic growth.

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

Updating their quarterly forecasts, officials projected the policy rate at 3.1 per cent at the end of 2019, according to their median estimate - compared with 2.9 per cent seen in March - and 3.4 per cent in 2020, unchanged from the prior forecast. The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%.

But for now, the Atlanta Fed estimates the US economy is roaring at a 4.6 percent rate, a level it reached only twice since the recession.

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That's a welcome change from recent years when Fed policymakers fretted about an inflation rate well below target. One respondent - BNP Paribas - forecast only one hike in 2019.

After nine years of steady if uneven recovery, the United States is now growing at a pace topping 4 percent, unemployment is as low as it has been this century, and inflation has safely edged up toward an official target. The S&P 500 Index closed 0.4 percent lower in NY, while benchmark 10-year yields ended a little higher at 2.97 percent.

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.

US central bankers again emphasized on Wednesday that the goal is "symmetric", and they said in minutes of the May meeting that "a temporary period of inflation modestly above 2 per cent" would help anchor long-run inflation expectations around the target. After years in which the economy expanded at roughly a tepid 2 percent annually, growth could top 3 percent this year. The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 per cent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth.

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