Published: Thu, June 14, 2018
Business | By Eloise Houston

US Federal Reserve raises interest rates

US Federal Reserve raises interest rates

Fed officials had been split about whether to raise rates three times this year or four. And that means higher interest rates on plastic.

The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the United States central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as the economy enters a 10th straight year of growth.

"The labor market is getting tighter, and price pressures are picking up", said Greg McBride, chief financial analyst at Bankrate.com.

The euro nudged up 0.1 percent to $1.1802, bouncing back from $1.1725 hit after the Fed's announcements and edging near last week's high of $1.1840.

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.

But, he added, "We really don't see it in the numbers". These figures are still considerably below what Trump administration officials at various times have promised or projected. Those moves have inflated steel and aluminum costs.

"The decision you see today is another sign that the economy is in great" shape, Powell told reporters following the decision.

"The economy is doing very well", Powell said at a news conference after the meeting. This raises some speculation that every meeting becomes live for a possible adjustment to rates as it offers the chance for the Fed to explain its move in an open forum. The Fed's new forecast showed inflation inching up only slightly over the next 2 1/2 years. In the longer run, it maintained the forecast for 1.8% growth.

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.

A gradual rise in inflation is coinciding with newfound economic strength. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late previous year.

With employers hiring at a solid pace month after month, unemployment has reached 3.8 per cent. At the same time, they project the unemployment rate to fall to 3.6 percent this year, down from earlier projections of 3.8 percent.

However, the FOMC statement stressed that rising interest rates were unlikely to derail economic growth - which it now characterizes as "strong" rather than "moderate" - and again made clear the Fed had some tolerance for inflation above its two percent target. "If the ECB or the Bank of Japan begin tightening it'll have a bigger impact than the Fed". But if it miscalculates and overdoes the credit tightening, it can trigger a recession.

Trump's imposition of tariffs on steel and aluminum imports has enraged USA allies.

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