Federal Reserve hikes key interest rate for second time in 2018

Federal Reserve hikes key interest rate for second time in 2018

The federal funds target rate, which is now between 1.75 and 2 percent, is the highest it's been in almost a decade, indicating that the nation's central bank has confidence the economy will continue to expand. Most officials expect the Fed would need to raise rates at least three more times next year and at least once more in 2020, leaving rates in a range between 3.25% and 3.5% by the end of 2020, the same end point officials projected in March.

They see another three rate increases next year, a pace unchanged from their projections in March. The Fed anticipates that inflation will be 2.1% in 2019 and 2020, which is a little over its target rate of 2% through 2020, but is viewed as manageable.

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.

In its updated forecasts, the Fed envisions stronger growth this year - 2.8 per cent, up from the 2.7 per cent it predicted in March.

In the U.S., Fed officials are setting policy for an economy that's being boosted by $1.5 trillion in tax cuts and a $300 billion increase in federal spending, while unemployment has fallen to levels that match the lowest since 1969.

Following its two-day monetary policy meeting, the Federal Reserve raised interest rates by 25 basis points Wednesday, in line with expectations. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 per cent objective over the medium term.

The Fed's twin mandate is to bolster employment while controlling inflation, and in the current environment more rate rises appear inevitable. Unemployment and inflation are low.

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This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average.

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

The Fed also signaled that it may raise rates twice more in 2018, with Fed Chair Jerome Powell saying that the U.S. economy was in "great shape".

The change will start in January following the meetings that are scheduled roughly once every six weeks, to give the Fed "more opportunities to explain our actions", Mr Powell told reporters. Should the Fed's expectations prove accurate, its policy would then be meant to slow the economy. Inflation by the Fed's preferred gauge would hit its 2 percent target this year and edge up to 2.1 percent over the next two years. It would also allow the Fed to be less choreographed and more spontaneous in cutting or raising rates as economic conditions warrant.

While an improving economy is good for the job market and worker wages, it's bad for credit-card borrowers because it means higher interest costs.

The economic expansion has survived for nine years and is now the second-longest in history. All those countries have vowed to retaliate against any USA tariffs with their own penalties against US goods.

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