Fed hikes key rate again, signals more increases coming

WASHINGTON — Despite President Donald Trump's unusual public criticism of their monetary policy, Federal Reserve officials inched up their key interest rate again on Wednesday — and indicated they would be undaunted to do so again in the face of strong economic growth.

"If you look back over the last decade, this is a pretty good moment for the U.S. economy," Fed Chairman Jerome H. Powell told reporters after the rate hike announcement.

The latest 0.25 percentage-point increase, approved by a unanimous vote, brings the target of the central bank's benchmark federal funds rate to between 2 percent and 2.25 percent.

In their announcement after a two-day meeting, Fed officials no longer called their monetary policy "accommodative." That means the short-term interest rate is approaching a more normal level after years of staying low to fight the Great Recession and its aftermath.

Powell stressed that removing the word didn't indicate any change in the Fed's plan to raise interest rates.

"We still expect ... further gradual increases in the target range of the federal funds rate," he said.

The Fed now has raised the federal funds rate by 0.25 of a percentage point three times since Powell took office in February in a normalization process begun under his predecessor, Janet L. Yellen.

The rate, which is used by banks to determine rates for credit cards, car loans, small-business loans and home equity lines of credit, has been increased eight times since December 2015 after it was held at an unprecedented level of near zero for seven years.

Fed officials said Wednesday the economy has been growing at a "strong rate" and the job market has "continued to strengthen." Inflation is near the Fed's annual 2 percent target, although it has been running above that recently. Fed policymakers boosted their projections for economic growth to 3.1 percent this year from a 2.8 percent estimate in June and held their inflation forecast steady at 2.1 percent.

Fed officials also projected they would raise the rate another 0.25 percentage point by the end of this year and three more times in 2019. Those were the same forecasts as in June, before Trump criticized the recent rate hikes, worrying they would slow growth.

If those projections hold, the target for the federal funds rate would be between 3 percent and 3.25 percent by the end of 2019.

The U.S. economy grew at a 4.2 percent annual rate in the second quarter of the year, the best since 2014, boosted by solid growth worldwide and the stimulus of the tax cuts that kicked in Jan. 1.

But analysts don't expect the U.S. to continue that pace. Growth is expected to slow to about 3.1 percent in the third quarter. A trade war with China also could slow growth this fall.

Despite the Trump administration's promise the tax cuts would create sustained growth of 3 percent or higher, Fed officials forecast Wednesday that growth would slow next year to 2.5 percent and then to 2 percent in 2020.

Trump publicly criticized the Fed's monetary policy this summer, saying he was "not thrilled" that Powell was slowly raising the benchmark rate.