Fed holds key rate steady, signals future hikes

WASHINGTON — The Federal Reserve on Wednesday left its benchmark interest rate unchanged while signaling further gradual rate hikes in the months ahead as long as the economy stays healthy.

The Fed’s decision kept the central bank’s key short-term rate at 1.75 percent to 2 percent — the level hit in June when the Fed boosted the rate for a second time this year. Private economists expect the next hike to occur at the September meeting with a fourth rate hike expected in December.

The Fed’s statement was upbeat on the economy, pointing to a strengthening labor market, economic activity growing at “a strong rate,” and inflation that’s reached the Fed’s target of 2 percent annual gains.

Analysts saw all the comments about economic strength as a clear signal that the Fed remains on track to raise rates two more times this year.

“All signs still point to a September rate hike,” said Greg McBride, chief financial analyst at Bankrate.com.

There was no mention in the statement of tariffs on billions of dollars of U.S. exports and imports that have been imposed as a result of President Donald Trump’s approach on trade. The statement also made no reference to criticism Trump has lodged recently against the Fed’s continued rate hikes.

The Fed’s decision was approved on an 8-0 vote. The action was not surprising, given that this meeting followed a June session where the Fed took a number of steps including raising rates by another quarter-point and changing its projection for hikes this year from three to four.

The March and June rate hikes followed three hikes in 2017 and one each in 2015 and 2016. The Fed’s key policy rate is still at a relatively low level. But it’s up from the record low near zero where it remained for seven years as the central bank worked to lift the economy out of the Great Recession.

The quarter-point rate hikes are intended to prevent the economy from overheating and pushing inflation from climbing too high. But higher rates make borrowing costlier for consumers and businesses and can weigh down stock prices.

“Tightening now hurts all that we have done,” Trump tweeted last month, a day after he said he was “not happy” with the rate increases.

At the moment, economic growth is strong, rising at an annual rate of 4.1 percent in the AprilJune quarter, the best showing in nearly four years. Unemployment is at a low 4 percent, and some analysts believe it will fall further when the government releases the July figures on Friday.

But there are worries as well, led by fears of what a trade war might do to growth.

Speaking to Congress last month, Fed Chairman Jerome Powell refrained from criticizing Trump’s effort to use the threat of tariffs to try to lower trade barriers, but Powell noted that the Fed was hearing a “rising chorus of concern” from businesses about the harm a trade war could cause.