STEADY AS SHE GOES AT THE FED

Modest increase will mean higher costs for consumer, business loans over time

Federal Reserve sticks to plan of gradual tightening under new chairman, Jerome Powell.

WASHINGTON — The Federal Reserve is raising its key interest rate and signaling confidence in the U.S. economy’s durability but plans to continue a gradual approach to rate hikes for 2018 under its new chairman, Jerome Powell.

The Fed said it expects to increase rates twice more this year. It increased its estimate for rate hikes in 2019 from two to three, reflecting more optimistic expectations for solid growth and low unemployment.

In a statement ending its latest policy meeting, the Fed boosted its key short-term rate Wednesday by a modest quarter-point to a still-low range of 1.5 percent to 1.75 percent. It also said it will keep shrinking its bond portfolio. The actions mean consumers and businesses will face higher loan rates over time.

The Fed’s rate hike marks its sixth since it began tightening credit in December 2015. The action was approved 8-0, with the Fed avoiding any dissents at the first meeting that Powell has presided over as chairman since succeeding Janet Yellen last month.

Bond yields rose and stocks held on to much of their gains after the Fed’s announcement, which was widely expected. The yield on the 10-year Treasury note, a benchmark for mortgages and other loans, rose from 2.87 percent to 2.93 percent. The Dow Jones industrial average ended the day down about 45 points, or .18 percent; it had been up 210 just before the announcement.

The new economic forecast made no change to the December projection for three hikes this year.

At a news conference after the meeting, Powell said the Fed hasn’t lowered its forecasts for economic growth because of the Trump administration’s decision to impose tariffs on steel and aluminum imports. But he said the Fed’s regional bank presidents around the country have heard concerns from businesses about the consequences of the tariffs.

“Trade policy has become a concern going forward for that group,” the chairman said, referring to business leaders.

Wednesday’s statement showed only minor changes from the text the Fed had issued in January. The statement described economic activity as rising at a “moderate rate,” a slight downgrade from January, when the Fed described the economy as rising at a “solid rate.”

It did not mention the government stimulus that has been added in the form of a $1.5 trillion tax cut and a budget agreement that will add $300 billion in government spending over two years.

But the Fed’s new forecast does envision somewhat stronger economic growth compared with its previous estimate: It raises the estimate to 2.7 percent growth this year, up from 2.5 percent in the December projection, and 2.4 percent in 2019, up from 2.1 percent. Those higher estimates may reflect the expected impact of the additional government spending.

The U.S. unemployment rate, now at a 17-year low of 4.1 percent, is expected to keep falling to 3.8 percent at the end of this year and 3.6 percent at the end of 2019, which would be the lowest rate in a half-century. The Fed expects inflation, which has run below its 2 percent target for six years, to stay at 1.9 percent this year and then rise to 2 percent in 2019.