Fed raises key rate and sees possible acceleration in hikes

Fed raises key rate and sees possible acceleration in hikes

Fed raises key rate and sees possible acceleration in hikes

The Federal Reserve on Wednesday raised its benchmark interest rate a quarter percentage point, marking the seventh such move since the end of 2015.

Inflation is also snapping into line, with fresh projections from policymakers on Wednesday indicating it would run above the central bank's 2 percent target, hitting 2.1 percent this year and remaining there through 2020.

The Fed also signaled that it will raise rates more this year than previously expected - four times rather than three. The most immediately affected will be credit-card interest rates, which are subject to near-instantaneous revision to track the federal funds rate.

They see another three rate increases next year, a pace unchanged from their previous forecast.

The Fed move came after a two-day meeting where its members discussed the robust state of the USA economy and the potential impact of a trade war amid rising tension between the U.S. and its largest trading partners. The action means consumers and businesses will face higher loan rates over time.

So-called core inflation - which excludes volatile items like energy and housing - is now 2.2 percent, around the level the Fed is looking for.

Policy makers said in a one-page statement that the labor market "has continued to strengthen" and than economic activity "has been rising at a solid rate".

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 aluminum imports from the European Union, Canada and Mexico. That means that by then, it thinks its key rate will finally exceed the 2.9 percent it sees as neutral - as neither stimulating nor restraining growth. The Fed expects inflation higher than 2% over the next two years, according to its latest projections.

A gradual rise in inflation is coinciding with newfound economic strength. With employers hiring at a solid pace month after month, unemployment has reached 3.8 percent.

The unemployment rate is 3.8%, the lowest since 2000 and tied for the lowest reading since 1969.

Beginning in 2008 in the midst of the financial crisis, the Fed had kept its key rate unchanged at a record low near zero for seven years.

The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing worldwide trade disputes could slow US growth.

At nine years, the economic expansion is now the second-longest in history. 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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