Fed raises rates, Powell talks future plans

Fed raises rates, Powell talks future plans

Powell was speaking at a press conference after the Fed announced its decision to raise interest rates.

The Fed raised its benchmark overnight lending rate a quarter of a percentage point to a range of 1.75 percent to 2 percent, as expected, on the back of strong USA economic growth. Not since 1969 has the jobless rate been lower. Even amid concerns about U.S. trade policy, the Fed raised its forecast for gross-domestic-product growth this year to 2.8% from 2.7%.

Interest rates are expected to increase to 3.1% next year, up from the previous forecast of 2.9%.

The latest increase puts the federal funds rate in a range between 1.75 and 2 percent.

The specter of higher borrowing costs hit stocks while boosting US bond yields and the dollar.

In the currency market, the dollar was relatively well bid ahead of the Fed's meeting.

The Fed move came after a two-day meeting where its members discussed the robust state of the U.S. economy and the potential impact of a trade war amid rising tension between the USA and its largest trading partners. Should the Fed's expectations prove accurate, its rate policy would then be meant to slow the economy. "The trajectory of United States inflation or the broader United States economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments.

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And since the Fed started its post-recession rate increases in late-2015, they've coincided with hikes so that the chair has an opportunity to explain the decision. And their rate increases are addressing the "perceived threat of inflation", not an immediate inflation problem, he said.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4% in 2020 before dropping to 2.9% in the longer run.

The central bank also lifted its growth forecast to 2.8 per cent this year, up a small amount from its projection of 2.7 per cent annual growth in March.

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

The rate increase was in line with investors' expectations and showed policymakers' confidence in the economy's growth prospects, continued low unemployment and steady inflation.

The yield on the benchmark 10-year Treasury note rose for a fourth consecutive trading session to 2.979% from 2.959% Tuesday. "I think it's more just, we are just looking at the economy and what does it need and how do we sustain the expansion, keep the labour market strong and try to keep inflation near 2 percent".

This will raise borrowing costs for credit cards, auto financing, mortgages, and other loans, but help savers earn more interest on their deposits.

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