Federal Reserve raises key rate
The Federal Reserve took note of a resilient U.S. economy Wednesday by raising its benchmark interest rate for the second time this year and signaling that it might step up its pace of rate increases.
The Fed now foresees four rate hikes this year, up from the three it had previously forecast. The action means consumers and businesses will face higher loan rates over time.
The central bank raised its key short-term rate by a modest quarter-point to a still-low range of 1.75 percent to 2 percent. With the economy now nine years into an expansion, the move reflects the steadiness of growth, the job market’s strength and inflation that’s finally reaching the Fed’s 2 percent target level.
Economists said the Fed left little doubt that it’s prepared to increase the pace of its credit tightening to guard against high inflation later on.
“The labor market is getting tighter, and price pressures are picking up,” said Greg McBride, chief financial analyst at Bankrate.com. “The Fed is prepared to be quicker about pushing rates higher.”
It was the Fed’s seventh rate increase since 2015, and it followed an increase in March this year.
The announcement helped resolve a debate in financial markets over whether the Fed under Jerome Powell might see a need to signal a possible acceleration in rate hikes. The statement the Fed issued Wednesday after its latest policy meeting ended suggested that he does.
Besides raising its projection for rate increases this year from three to four, the Fed removed a key sentence from the previous statement that had been viewed as foreseeing a need to keep rates low for an extended period. The Fed’s new projection for the pace of rate hikes shows four this year, three in 2019 and one in 2020.
At a news conference, Powell sought to portray the Fed’s actions as evidence mainly that the economy is doing well and not that the central bank is eager to accelerate its rate increases.
“The economy is in great shape,” Powell said.
He acknowledged that the Fed is hearing concerns from some business executives about the Trump administration’s combative trade policies, including anecdotal cases in which companies have postponed hiring or major purchases.
But Powell added, “For now, we don’t see that in the numbers at all.”
Powell also announced that in the interest of public transparency, he will begin next year to hold a news conference after each of the Fed’s eight yearly policy meetings, rather than only once a quarter.