Fed raises key rate; ac­cel­er­a­tion in hikes is pos­si­ble


WASH­ING­TON — 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 may 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 quar­ter­point 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 re­solved a de­bate in fi­nan­cial mar­kets over whether the Fed un­der Jerome Pow­ell, who suc­ceeded Janet Yellen as chair­man in Fe­bru­ary, 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.

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