Federal Reserve raises key rate, eyes two more hikes this year

WASHINGTON 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 raise 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 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 two moves mean that many 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 latest rate hike marks its sixth since it began tightening credit in December 2015, after having kept its benchmark rate at a record low near zero for seven years to help nurture the economy’s recovery from the recession.

Bond yields rose and stocks held on to much of their gains after the Fed’s announcement, which was widely expected. But by the time stock trading had ended, the Dow Jones industrial average was down modestly, and the yield on the 10year Treasury note, a benchmark for mortgages and other loans, was up only slightly to 2.88.

Some investors had speculated that Powell might move to impose his mark on the central bank by signalling a faster pace of rate hikes for 2018.

But the new economic forecast, which includes a median projection for the path of future increases, made no change to the December projection for three hikes this year.