Federal Reserve raises interest rates

Fed raises interest rates and signals faster hikes on the way

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

The central bank raised its key short-term rate by a modest quarter-point to a still-low range of 1.75 percent to 2 percent.

The central bank said it expects two more rate hikes this year, indicating an increasingly positive view of the economic expansion. That puts the Fed on track for four rate hikes total in 2018, something the Fed hasn't done since 2006.

The Fed announced the rate rise at the close of a two-day meeting in Washington. The Fed previously nudged rates up in March. The dollar.DXY pared some losses but was still trading lower against a basket of currencies.

Powell appeared at ease Wednesday in fielding questions ranging from the intricacies of monetary policy to banking regulation and even to whether marijuana should be legalized.

The Fed now envisions stronger growth this year - 2.8 percent, up from the 2.7 percent it predicted in March. With the economy now nine years into an expansion, the move reflects the steadiness of growth, the job market's strength and inflation that's finally nearing the Fed's target level. Unemployment is already at 3.8 percent, the lowest since 2000, and the Fed believes it will fall to 3.6 percent by the end of the year, which would be the best rate since the 1960s. 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". "Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly".

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Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory. The action means consumers and businesses will face higher loan rates over time.

The unemployment rate is seen falling to 3.6 percent in 2018, compared to the 3.8 percent forecast in March.

After keeping interest rates low for years to boost growth, the central bank is now moving rates back to what economists say is a neutral position. The top interest rate now on offer for a savings account is just 2.05 percent, according to Bankrate, with the average rate only 0.06 percent. Rates for auto loans and variable-rate mortgages are also likely to increase.

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.

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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