Fed raises rate and sees more hikes as US economy improves

The Federal Reserve has raised its benchmark interest rate for the second time in three months and forecast two additional hikes this year. The move reflects a consistently solid U.S. economy and will likely mean higher rates on some consumer and business loans.

The Fed’s key short-term rate is rising by a quarter-point to a still-low range of 0.75 per cent to 1 per cent. The central bank said in a statement that a strengthening job market and rising prices had moved it closer to its targets for employment and inflation.

The message the Fed sent Wednesday is that nearly eight years after the Great Recession ended, the economy no longer needs the support of ultra-low borrowing rates and is healthy enough to withstand steadily tighter credit.

The decision, issued after the Fed’s latest policy meeting, was approved 9-1. Neel Kashkari, president of the Fed’s regional bank in Minneapolis, was the dissenting vote. The statement said Kashkari preferred to leave rates unchanged.

The Fed’s forecast for future hikes, drawn from the views of 17 officials, still projects that it will raise rates three times this year, unchanged from the previous forecast in December. But the number of Fed officials who think three rate hikes will be appropriate for 2017 rose from six to nine.

The central bank’s outlook for the economy changed little, with officials expecting growth of 2.1 per cent this year and next year before slipping to 1.9 per cent in 2019. Those forecasts are far below the 4 per cent growth that President Donald Trump has said he can produce with his economic program.