US Fed raises key interest rate but signals slower pace of increases to come

WASHINGTON: Amid stock market turmoil and President Donald Trump’s attacks on the Federal Reserve for raising rates, Fed officials announced a potentially significant shift in policy by signalling a slower path of interest rate increases in the future.

The US central bank, as expected, did boost its benchmark interest rate by a quarter percentage point, to a range of 2.25% to 2.5%.

That was the fourth such rate hike of the year and will shortly nudge up borrowing costs for those carrying balances on credit cards, homeequity lines and some other loans.

More importantly, the Fed hit a kind of pause button in a campaign that has had a rate increase in each of the last five quarters.

The change in thinking was evident in new projections by Fed policymakers. In September, most officials predicted at least three rate rises for next year, some expecting four and even five increases. But now, most Fed participants expect just one or two rate rises next year, and noone thinks there will be more than three.

In their statement, released on Thursday after a twoday meeting, officials made a tiny tweak in the language, adding the word ‘‘some’’ to its expectations for ‘‘further gradual increases’’.

After this latest move, the Fed could hold off raising rates in March or even later.

Since late 2015, the Fed has raised its key rate by a quarter point nine times, reflecting its confidence that the US economy is growing solidly enough to absorb steadily higher borrowing costs. Economic growth has picked up this year thanks in part to tax cuts.

Fed officials have sought to raise rates to get ahead of potentially rising inflation as the labour market has tightened, and to have greater ability to lower rates in the future should the economy start faltering.

The latest statement, and an updated economic forecast also released on Thursday, show Fed policymakers remain bullish about the economy. They noted the strong job gains, consumer spending and the low unemployment rate.

The Fed, however, slightly lowered its economic growth projections for this year and next. And in its latest statement, gave a nod to recent concerns about a slowdown outside the US and the volatile stock market.

The Fed said it ‘‘will continue to monitor global economic and financial developments and assess their implications for the economic outlook’’.

According to its latest forecast, the Fed expects the US economy to grow at a strong 3% this year, but the slowdown in 2019 will be a little sharper, it said. The Fed’s median economic growth rate for next year is now 2.3%, down from the 2.5% that officials had projected three months ago.

Most private economists agree with that assessment, in part because stimulus from this year’s tax cuts is set to fade.

Stock markets have behaved recently as if recession was around the corner, with the Dow, S&P; 500 and Nasdaq each down more than 7.5% this month, as of Wednesday’s close.

Investors have become increasingly anxious about the economic outlook. Their fears seem to be coming from several fronts: the US trade conflict with China; slowing global growth, particularly China; and uncertainties about Britain’s deal to exit from the European Union, Chris Rupkey, chief financial economist at MUFG Union Bank in New York said.

By most accounts, the US economy remains solid, but financial conditions have tightened and there are signs of a weakening housing sector. And some investors and observers, including Trump, have blamed the stock market woes on the Fed having raised interest rates a little too much, too quickly.

Trump has been relentless in making his feelings on the issue public. In October he described the Fed as ‘‘crazy,’’ ‘‘loco,’’ ‘‘going wild’’ and ‘‘out of control’’ for gradually raising rates. And this week, he renewed his harangues, tweeting on Wednesday that the Fed should not make ‘‘yet another mistake.’’

Fed chairman Jerome Powell, like others before him, has spoken about the central bank’s independence and that it made decisions without regard to political influence. At the same time, analysts note that it would still be hard to ignore Trump’s repeated criticisms.

‘‘I’m sure it must be ringing in the back of their heads,’’ Rupkey said of Trump’s effect on policymakers. — TCA