US Federal Reserve raises rate but signals slower pace ahead

WASHINGTON (AFP) – The US Federal Reserve (Fed) raised the benchmark interest rate on Wednesday, staking its independence despite repeated attacks by President Donald Trump, but it also sent a clear signal it expects to take it slow next year in the face of plateauing growth.

The Fed's fourth rate increase of the year, which sent Wall Street tumbling, moved the central bank squarely into the crosshairs of the president, who had said earlier a rate hike would be ''foolish.''

Wall Street stocks tumbled Wednesday after the Federal Reserve lifted interest rates while pledging a cautious approach to additional interest rate hikes next year.

The Dow Jones Industrial Average dropped 1.5 percent, about 350 points, to 23,323.66.

The broad-based S&P also shed 1.5 percent to 2,506.96, while the tech-rich Nasdaq Composite Index sank 2.3 percent to 6,636.83.

The declines left all three indices at fresh lows for 2018.

Asked about the dangers of Trump's twitter rants disrupting decision-making, Federal Reserve Chairman Jerome Powell told reporters political considerations played ''no role whatsoever'' in the central bank's deliberations.

In a unanimous decision, the Fed delivered on what some economists called a ''dovish hike,'' raising the target range for the federal funds rate by 0.25 point, with 2.5 percent at the high end, while providing the clearest signal to date of a cautious stance moving forward, especially as it keeps an eye on potential international risks.

Despite generally healthy growth, Powell acknowledged the increased sense of caution due to ''developments that may signal some softening, relative to what we were expecting a few months ago.''

''Growth in other economies around the world has moderated somewhat over the course of 2018, albeit still solid levels,'' he told reporters.

Since inflation has remained moderate, that allows the Fed ''to be patient'' in raising rates moving forward.

And central bankers now expect just two increases next year in the key rate used to set the cost of borrow for everything from cars to homes.

The less upbeat outlook sent shares tumbling and Wall Street closed down sharply, while the dollar advanced against the euro.

''Faced with political pressure from the president to stop raising rates and panic on the part of investors who were seeing their massive capital gains disappear, the Fed could have punted. Instead, it decided to continue trying to win the game,'' economist Joel Naroff said.

While he highlighted Powell's focus on solid growth prospects, Naroff said the markets may have wanted the Fed to keep rates on hold next year.

''You would think that continued good growth and inflation under control would be good news for the markets. Wrong again.''

After the two-day policy meeting said the central bank said it ''will continue to monitor global economic and financial developments and assess their implications for the economic outlook.''