Fed lifts rates amid stronger inflation, drops crisis-era guidance

Fed lifts rates amid stronger inflation, drops crisis-era guidance

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

The Fed now foresees four rate hikes this year, up from the three it had previously forecast. And that means higher interest rates on plastic.

The tighter policy reflects expectations for stronger growth, lower unemployment and faster inflation than officials had anticipated in March.

The central bank had projected three to four rate hikes this year as the economy continues to pick up steam and inflation nears the 2% target rate thanks to strong labor market conditions.

Greg McBride, chief financial analyst for the interest rate website Bankrate.com, said that could "squeeze" families if wage growth remains sluggish.

The central bank said it expects two more rate hikes this year, indicating an increasingly positive view of the economic expansion.

The announcement helped resolved a debate in financial markets over whether the Fed under Jerome Powell, who succeeded Janet Yellen as chairman in February, might see a need to signal a possible acceleration in rate hikes.


Rates for savers have tended to lag the Fed's hikes.

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 aluminum imports from the European Union, Canada and Mexico.

Powell also announced the central bank would start holding news conferences after every policy meeting next year, which means a total of eight in 2019.

The federal government drastically upgraded its forecasted 2018 economic outlook Wednesday, saying the USA economy was rising at a "solid" rate; an increase from its previous prediction of "moderate" growth. After years in which the economy expanded at roughly a tepid 2 percent annually, growth could top 3 percent this year.

USA unemployment dropped to 3.8% in May, its lowest level since April 2000 and one of the lowest levels since the second world war.

The 3.8-percent jobless rate is close to the lowest level ever seen in the U.S. There are more job openings than workers seeking employment in the country for the first time in recorded history, and recent inflation data shows prices inching through the Fed's ideal threshold.

Powell faces a tricky balancing act as the Fed attempts to bring interest rates toward historical averages. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing worldwide trade disputes could slow US growth. All those countries have vowed to retaliate against any US tariffs with their own penalties against USA goods.

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