US Fed set to raise key interest rates

WASHINGTON: The US Federal Reserve is widely expected to raise its benchmark interest rate this week due to a tightening labour market and may also provide more detail on its plans to shrink the mammoth bond portfolio it amassed to nurse the economic recovery. The central bank is scheduled to release its decision at 2pm EDT (1800GMT) on Wednesday at the conclusion of its two-day policy meeting. Fed Chair Janet Yellen is due to hold a press conference at 2:30pm EDT (1830GMT).

“The expectation of a rate hike... is widely held, and has been reinforced by the most recent round of Fed communications,” said Michael Feroli, an economist with J.P. Morgan. Economists polled by Reuters overwhelmingly see the Fed raising its benchmark rate to a target range of 1.00 to 1.25 per cent this week.

The Fed embarked on its first tightening cycle in more than a decade in December 2015. A quar- ter percentage point interest rate rise on Wednesday would be the second nudge upwards this year following a similar move in March.

Since then, the unemployment rate has fallen to a 16-year low of 4.3 per cent and economic growth appears to have reaccelerated following a lackluster first quarter.

Other indicators of the economy’s health have been more mixed. The Fed’s preferred measure of underlying inflation has retreated to 1.5 per cent from 1.8 per cent earlier in 2017 and investors are growing increasingly doubtful policymakers will be able to stick to their anticipated pace of tightening of three interest rate rises this year and next. Fed policymakers’ confidence in their outlook will be on show on Wednesday when they release their latest set of quarterly projections on growth, unemployment and inflation as well as their expected rate hike path.