Fed Raises Interest Rates, Signals Faster Hikes on the Way

A drink vendor moves past an electronic stock board of a securities firm in Tokyo. – AP

A drink vendor moves past an electronic stock board of a securities firm in Tokyo. – AP

The Federal Reserve increased a key interest rate again Wednesday, which will trigger higher rates on credit cards, home equity lines and other kinds of borrowing.

The Fed now foresees four rate hikes this year, up from the three it had previously forecast.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run.

The tighter policy reflects expectations for stronger growth, lower unemployment and faster inflation than officials had anticipated in March.

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

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The central bank said it expects two more rate hikes this year, indicating an increasingly positive view of the economic expansion. The Fed's new projection for the pace of rate hikes shows four this year, three in 2019 and one in 2020. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does. At this point, there's been little evidence that wage or price inflation is accelerating.

But, he added, "We really don't see it in the numbers".

The policy statement bypassed discussion about the tensions over the Trump administration's trade policies, including a decision two weeks ago to impose tariffs on steel and aluminium imports from the European Union, Canada and Mexico.

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.

Since the Fed began holding quarterly news conferences in 2011, it has announced major policy moves only at the quarterly meetings, which have all been followed by a news conference by leader of the Fed.

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Fed policymakers projected gross domestic product would grow 2.8 percent this year, slightly higher than previously forecast, and dip to 2.4 percent next year, while inflation is seen hitting 2.1 percent this year and remaining there through 2020. This was the second hike this year, up from March's increased range of 1.5 to 1.75 percent.

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

Powell faces a tricky balancing act as the Fed attempts to bring interest rates toward historical averages.

The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 percent objective". Canada, the European Union and Mexico have all pledged to retaliate with tariffs on USA imports, which some studies show could cost the US close to 200,000 jobs.

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