US Fed raises rates as job gains, firming inflation stoke confidence
WASHINGTON (Reuters) – The US Federal Reserve raised interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising to the central bank’s target.
The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75% to 1.00% marked one of the Fed’s most convincing steps yet in the effort to return monetary policy to a more normal footing.
However, the Fed’s policy-setting committee did not flag any plan to accelerate the pace of monetary tightening. Although inflation is “close” to the Fed’s 2% target, it noted that goal was “symmetric,” indicating a possible willingness to allow prices to rise at a slightly faster pace.
Further rate increases would only be “gradual,” the Fed said in its policy statement, with officials sticking to their outlook for two more rate hikes this year and three more in 2018. The Fed lifted rates once in 2016.
Business investment “appears to have firmed somewhat,” the Fed said in language that reflected a stronger sense of the economy’s momentum.
Fresh economic forecasts released with the statement showed little change from those of the December policy meeting and gave little indication the Fed has a clear view of how Trump administration policies may impact the economy in 2017 and beyond.
“With gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace,” the Fed said, maintaining language it has used in previous statements.
The Fed’s projections showed the economy growing by 2.1% in 2017, unchanged from the December forecast. The median estimate of the long-run interest rate, where monetary policy would be judged as having a neutral effect on the economy, held steady at 3.0%.
The unemployment rate Fed officials expect by the end of the year was unchanged at 4.5%, while core inflation was seen as slightly higher at 1.9% versus the previous 1.8% forecast.
The rate increase comes amid a broad improvement in the world economic outlook and a sense among Fed policy makers that the US economy is close to the central bank’s employment and inflation goals.
According to the policy statement, risks remained “roughly balanced,” the Fed said.
Minneapolis Fed President Neel Kashkari was the only Fed official to dissent in Wednesday’s decision, saying he preferred to leave rates unchanged.