US Federal Reserve raises key interest rate to 1.75-2%

Federal Reserve expected to hike rates as Sterling slips

Fed raises interest rates as unemployment nears record lows | TheHill

"The economy doesn't need two more rate hikes, especially with geopolitical risks", such as tariffs, which could slow growth in the US and around the world, said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does.

"Economic activity has been rising at a "solid" rate, the Fed's statement said, marking an upgrade from "moderate" in the previous statement".

"Household spending has picked up while business fixed investment has continued to grow strongly", the Fed said.

The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year. Fed Chairman Jerome Powell said at a news conference that the United States economy has strengthened considerably since the 2007-08 recession and is in "great shape".

However quarterly economic forecasts show central bankers now expect the rate to end the year at 2.4%, rather than the 2.1% projected in March. The Fed's unemployment rate level declined to 3.6%, but inflation remained stable.

"When you look more closely, only eight board members saw two more hikes by the end of year, compared to seven who saw one hike".

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That shift came as a single FOMC member shifted his or her forecast for this year and next, breaking a virtual tie in the projections released in March. Estimates of the long-run sustainable unemployment rate were unchanged at 4.5 per cent.

"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 per cent inflation objective".

That index now is at 2 per cent but other measures of consumer and producer prices have accelerated, pushed by rising fuel prices, as well as metals prices that could be the result of the steep import tariffs President Donald Trump imposed. They signaled previously that they wouldn't overreact if inflation overshot the target, but they haven't said how much of an overshoot they will tolerate, or for how long.

The median estimate for economic growth this year rose to 2.8 per cent from 2.7 per cent in March, with projections unchanged for 2.4 per cent in 2019 and 2 per cent in 2020.

Yields earlier swung between gains and losses as investors awaited guidance about whether policy makers see enough pressure on prices to increase their projected pace of interest rate increases, or whether concerns about the ability of the economy to sustain its growth in coming years might lead to a pullback in forecasts of rate increases in coming years, analysts said.

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