Fed raises key rate in unanimous vote
Central bank hints 2 more increases are likely this year
WASHINGTON — The Federal Reserve raised its key interest rate Wednesday in a vote of confidence in the U.S. economy’s durability while signaling that it plans to continue a gradual approach to rate hikes for 2018 under its new chairman, Jerome Powell.
The Fed said it expects to raise rates twice more this year. And it increased its estimate for rate hikes in 2019 from two to three, reflecting more optimistic expectations for growth and low unemployment.
In a statement after its latest policy meeting, the Fed said it boosted its key short-term rate 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 The Fed raised interest rates a quarter-point under chairman Jerome Powell, who presided over his first meeting. portfolio. The two moves mean that many consumers and businesses will face higher loan rates over time.
The Fed’s actions and forecasts suggest a belief that the economy remains sturdy even nearly nine years after the Great Recession ended.
The Fed’s latest rate hike marks its sixth since it began tightening credit in December 2015, after having kept its benchmark rate at a record low near zero for seven years to help nurture the economy’s recovery from the recession.
Wednesday’s action was approved 8-0, with the Fed avoiding any dissents at the first meeting Powell has presided over as chairman since succeeding Janet Yellen last month.
Bond yields rose and stocks held on to most of their gains after the Fed’s announcement, which was widely expected. But by the time stock trading had ended, the Dow Jones industrial average was down modestly, and the yield on the 10-year Treasury note, a benchmark for mortgages and other loans, was up only slightly.
Some investors had speculated that Powell might move to impose his mark on the Fed by signaling a faster pace of rate hikes for 2018. But the Fed’s new economic forecasts, which include a median projection for the path of future increases, made no change to its December projection for three hikes this year.
If the Fed sticks with its forecast for three rate increases this year and three in 2019, its key policy rate would stand at 3.4 percent after five years of credit tightening. Wednesday’s forecast put the Fed longterm rate — the point at which its policies are neither boosting the economy nor holding it back — at 2.9 percent.
At a news conference after the meeting, Powell said the Fed hasn’t lowered its forecasts for 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 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.
But among the Fed offi- cials who met in Washington this week, Powell said, “there’s no thought that changes in trade policy should have any effect on the current outlook.”
Wednesday’s statement showed minor changes from the text the Fed had issued in January after Yellen’s final meeting. 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.”
The jobless rate, now at a 17-year low of 4.1 percent, is expected to keep falling to 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 reach 2 percent in 2019.
A healthy job market and a steady economy have given the Fed the confidence to think the economy can withstand further increases.