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US Fed raises interest rates for second time this year

IANS  |  Washington 

The has raised short-term by a quarter of a percentage point, its second rate hike this year and the seventh since late 2015.

"In view of realized and expected labor market conditions and inflation, the (Federal Open Market) Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 per cent," the central said in a statement on Wednesday after concluding a two-day meeting.

The said the US labour market has "continued to strengthen" and economic activity has been "rising at a solid rate", with household spending picking up and business fixed investment growing strongly, reported.

The also said both overall inflation and so-called core inflation for items other than and "have moved close to 2 per cent", suggesting that officials are getting increasingly confident about inflation to reach its 2-per cent target.

In its latest forecast released on Wednesday, the central expected the U.S. to grow at 2.8 per cent this year, a little higher than 2.7 per cent estimated in March. The U.S. unemployment rate is expected to drop to 3.6 per cent by the end of the year, lower than 3.8 per cent previously estimated.

Solid economic growth and tumbling unemployment are likely to keep the Fed on a steady path toward tightening to prevent the US from overheating, analysts said.

Fed officials envisioned four rate hikes this year, up from three estimated in March, according to the median forecast for the federal funds rate. Fed policymakers also penciled three rate increases in 2019 and one in 2020.

Fed believed that a gradual pace of interest rate hikes remains the appropriate path for the central to sustain economic expansion.

"We continued to believe that a gradual approach for increasing the federal funds rate will best promote a sustained expansion of economic activity, strong labour market conditions, and inflation near our symmetric two per cent goal," Powell said Wednesday at a press conference.

"We are aware that raising rates too slowly might raise the risk that would need to tighten abruptly down the road in response to an unexpectedly sharp increase in inflation or financial excesses, jeopardising the economic expansion," he argued, adding the US could weaken and inflation could continue to run persistently below the 2-per cent target if the central bank raises too rapidly.

Wednesday's announcement marked the Fed's seventh rate hike of this tightening cycle beginning December 2015 and the second move under Powell, who took the helm of the central bank in February.

About 84 per cent of economists polled by The earlier this month estimated that the Fed would raise again at its September policy meeting.



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First Published: Thu, June 14 2018. 02:22 IST