Fed raises key rate

The Federal Reserve is raising its key interest rate and signalling confidence in the U.S. economy’s durability but plans to continue a gradual approach to rate hikes for 2018 under its new chairman, Jerome Powell.

The Fed said it expects to increase rates twice more this year. At the same time, it increased its estimate for rate hikes in 2019 from two to three, reflecting more optimistic expectations for solid growth and low unemployment.

In a statement ending its latest policy meeting, the Fed boosted its key short-term rate Wednesday by a modest quarter-point to a still-low range of 1.5 per cent to 1.75 per cent. It also said it will keep shrinking its bond portfolio. The actions mean consumers and businesses will face higher loan rates over time.

Taken together, the Fed’s actions and forecasts Wednesday suggest a belief that the economy remains sturdy even nearly nine years after the Great Recession ended.

The Fed’s rate hike marks its sixth since it began tightening credit in December 2015. The action was approved 8-0, with the Fed avoiding any dissents at the first meeting that Powell has presided over as chairman since succeeding Janet Yellen last month.

Bond yields rose and stocks held on to much of their gains after the Fed’s announcement, which was widely expected. The yield on the 10-year Treasury note, a benchmark for mortgages and other loans, rose from 2.87 per cent to 2.93 per cent. The Dow Jones industrial average was up 140 points, or 0.6 per cent; it had been up 210 just before the announcement.