Arab Times

US Fed raises key interest rate by quarter point for first time in year

Central bank sees three hikes in 2017

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WASHINGTON, Dec 14, (RTRS): The US Federal Reserve raised interest rates by a quarter point on Wednesday and signaled a faster pace of increases in 2017 as the Trump administra­tion takes over with promises to boost growth through tax cuts, spending and deregulati­on.

The rate increase, regarded as a virtual certainty by financial markets in the wake of a string of generally strong economic reports, raised the target federal funds rate 25 basis points to between 0.50 percent and 0.75 percent.

“In view of realized and expected labor market conditions and inflation, the committee decided to raise the target range,” the central bank’s policy-setting committee said in its unanimous statement after a two-day meeting.

“Job gains have been solid in recent months and the unemployme­nt rate has declined,” the Fed said, noting that market-based measures of inflation compensati­on had moved up “considerab­ly.”

More significan­t was a fresh batch of Fed policymake­r forecasts that indicated the current once-a-year pace of rate increases will accelerate next year.

With President-elect Donald Trump planning a simultaneo­us round of tax cuts and increased spending on infrastruc­ture, central bank policymake­rs shifted their outlook to one of slightly faster growth, lower unemployme­nt and inflation just under the Fed’s 2 percent target.

The Fed’s median outlook for rates rose to three quarter-point increases in 2017 from two as of September. That would be followed by another three increases in both 2018 and 2019 before the rate levels off at a long-run “normal” 3.0 percent.

That normal level is slightly higher from three months ago, a sign that the Fed feels the economy is still gaining traction.

The Fed continued to describe that pace as “gradual,” keeping policy still slightly loose and supporting some further improvemen­t in the job market. It sees unemployme­nt falling to 4.5 percent next year and remaining at that level, which is considered to be close to full employment.

Fed Chair Janet Yellen was scheduled to hold a press conference at 2:30 pm ET (1930 GMT) to elaborate on the decision.

US bond yields had already begun moving higher following the election and as expectatio­ns of the Fed rate increase solidified. By the start of this week, trading in fed funds futures assigned a greater than 95 percent likelihood to a rate hike, according to data compiled by the CME Group.

All 120 economists in a recent Reuters poll had expected a rate hike on Wednesday.

In the weeks following Trump’s Nov. 8 victory, Fed policymake­rs have said his proposals could push the economy into a higher gear in the short run. Even though the details of the Republican businessma­n’s plans remain uncertain, Wednesday’s statement marked a rare case in the postcrisis era in which the Fed moved its interest rate outlook higher.

Risks to the outlook remain “roughly balanced” between factors that could slow or accelerate the economy beyond what the central bank anticipate­s, the Fed said, no change from the November assessment.

The rate increase was the first since last December and only the second since the 2007-2009 financial crisis, when the Fed cut rates to near zero and deployed other tools such as massive bond purchases to stabilize the economy.

 ??  ?? In this file photo, Federal Reserve Chair Janet Yellen testifies on Capitol Hill in Washington, before the Joint
Economic Committee. (AP)
In this file photo, Federal Reserve Chair Janet Yellen testifies on Capitol Hill in Washington, before the Joint Economic Committee. (AP)

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