US Fed raises rate in sign of cautious confidence

THEUSFederalReserve, which on Wednesday raised its benchmark rate for the second time in three months, this time to a range between 0.75 percent and 1 percent, is finally moving towards the end of its eightyear-old economic stimulus campaign, which began in the depths of the financial crisis.

But Janet Yellen, the Fed’s chairwoman, said at a news conference after the decision was announced that the Fed did not share the optimism of stock market investors and some business executives that economic growth is gaining speed. It still plans to move slowly because the economy continues to grow slowly. She suggested that the Fed would have plenty of time to adjust should President Donald Trump and Congress cut taxes or spend big on infrastructure.

Her announcement was full of confidence. But it certainly was not ebullient.

“The data have not notably strengthened,” Yellen told reporters. “We haven’t changed the outlook. We think we’re moving on the same course we’ve been on.”

The Fed said that the US economy continued to chug along, expanding at a “moderate pace”. Businesses – the laggards in recent months – are starting to plow a little more money into their operations.

The Fed’s sobriety did not appear to make much of an impression on investors. The stock market’s heady march that began after Trump’s election, continued apace. The Standard & Poor’s 500-stock index rose 0.84 percent to close at 2,385.26 on Wednesday, moving up sharply after the announcement.

Some analysts said that the Fed will want to see an impact from its actions. “Policymakers hike rates to tighten financial conditions,” said Ellen Zentner, chief US economist at Morgan Stanley. “If this easing of financial conditions on the back of today’s hike are sustained, that would tell policymakers they need to do more.”

Zentner said she expected the Fed to raise rates again at its June meeting.

She noted that the Fed’s longer-term outlook is less clear. Yellen’s term as Fed chairwoman ends in February, and Trump could then replace her.

The Fed, charged with maximising employment and moderating inflation, is close to achieving both goals. The unemployment rate fell to 4.7 percent in February, and after several years of concern that prices were not rising fast enough, inflation is reviving.