Published: Wed, June 13, 2018
Money | By Armando Alvarado

Federal Reserve raises interest rates

Federal Reserve raises interest rates

The Federal Reserve has raised its benchmark interest rate for the second time this year and signaled that it may step up its pace of rate increases because of solid US economic growth and rising inflation.

Fed says further gradual rate increases will be consistent with sustained economic growth, strong labor market and inflation near 2 percent over medium term.

Fed drops reference from previous statements that it expected rates to be below neutral rate for "some time". The Fed's new forecast showed inflation inching up only slightly over the next 2 1/2 years.

The Fed is looking for interest rates to rise to 3.4% by 2020, unchanged from the previous forecast.

Federal Reserve Chairman Jerome Powell announced Wednesday that as from January 2019, he will hold press conferences after every policy meeting. The unemployment rate is seen falling to 3.6 percent in 2018, compared to the 3.8 percent forecast in March.

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The Fed's short-term policy rate, a benchmark for a host of other borrowing costs, is now roughly equal to the rate of inflation, a breakthrough of sorts in the central bank's battle in recent years to return monetary policy to a normal footing. While a few said the curve had become "a less reliable signal" of future activity, several stressed the link between inversions and coming economic downturns.

Inflation, which has been mysteriously low during the long economic recovery, has finally passed 2%, the level the Fed considers healthy. The most immediately affected will be credit-card interest rates, which are subject to near-instantaneous revision to track the federal funds rate.

Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory. Interest rates on new fixed-rate mortgages could also climb. Should the Fed's expectations prove accurate, its rate policy would then be meant to slow the economy.

And a majority of policy makers said they now expect a total of four interest rate increases this year.

Individual Fed policymakers have expressed concerns about the economic risks of a broad tit-for-tat tariff retaliation, but have said they would not change their policies or forecasts until those risks are realized.

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