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Fed raises rates, Powell talks future plans

14 June 2018
Fed raises rates, Powell talks future plans

The US Federal Reserve has voted to raise the target for its benchmark interest rate by 0.25%, citing solid economic expansion and job gains.

The biggest change the Fed made Wednesday was to signal that it intends to do two more rate hikes this year, instead of just one.

The Fed now foresees four rate hikes this year, up from the three it had previously forecast.

Consumers can expect interest rates to rise for all types of debt. Should inflation eventually pick up, the Fed might move to tighten credit more aggressively.

"In view of realized and expected labor market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 percent", read a portion of a Federal Open Market Committee statement released Wednesday afternoon.

"The labour market is getting tighter, and price pressures are picking up", said Greg McBride, chief financial analyst at Bankrate.com.

And if the Fed raises rates two more times this year, it will boost interest paid on credit cards to roughly $10 billion in 2019, the report said. The Fed previously nudged rates up in March.

The latest rate increase was in line with investors' expectations ahead of the release of the policy statement.

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.

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.

Since the Fed began holding quarterly news conferences in 2011, it has announced major policy moves only at the quarterly meetings, which have all been followed by a news conference by leader of the Fed.

Growth is also expected to stay close to nearly 3 percent of GDP through the year, and Fed officials are eager to prevent the economy from overheating.

The decision to raise rates comes as the U.S. unemployment rate hovers at 3.8% - the lowest rate in almost two decades - and inflation, which lagged the Fed's 2% target for years, shows signs of starting to pick up.

The unemployment rate, now at an 18-year low of 3.8 percent, is expected to fall to 3.6 percent this year, compared to the 3.8 percent that the Fed projected in March.

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

The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat. When the Fed tightens credit, it aims to do so without derailing the economy. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on USA imports, which some studies show could cost the US close to 200,000 jobs.