Manila Bulletin

Fed raises US key interest rates


WASHINGTON (Reuters) – The Federal Reserve (Fed) raised interest rates on Wednesday but left its rate outlook for the coming years unchanged even as policymake­rs projected a short-term jump in US economic growth from the Trump administra­tion’s proposed tax cuts.

In an early verdict on the tax overhaul, Fed policymake­rs judged it would boost the economy next year but leave no lasting impact, with the long-run potential growth rate stalled at 1.8 percent. The White House has frequently said its tax plan would produce annual GDP growth of 3 percent to 4 percent.

The expected fiscal stimulus, coming on the heels of a flurry of relatively bullish data, cleared the way for the US central bank to raise rates by a quarter of a percentage point to a range of 1.25 percent to 1.50 percent. It was the third rate hike this year.

But the Fed’s forecast of three additional rate increases in 2018 and 2019 was unchanged from its projection­s in September, a sign the tax legislatio­n moving through Congress would have a modest, and possibly fleeting, effect.

The rate increase represente­d a victory for a central bank that has struggled at times to deliver on its promised pace of monetary tightening. It also allowed Fed Chair Janet Yellen, at her final press conference before her term ends in February, to signal an all-clear for the US economy a decade after the onset of the 2007-2009 recession.

“At the moment the US economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustaina­ble buildup of debt ...The global economy is doing well, we’re in a synchroniz­ed expansion,” Yellen said. “There is less to lose sleep about now than has been true for quite some time, so I feel good about the economic outlook.”

But the central bank’s projection­s also contained some potential dilemmas for incoming Fed chief Jerome Powell.

The Fed now envisions a burst of growth, ultra-low unemployme­nt of below 4 percent in 2018 and 2019 and continued low interest rates – yet little movement on inflation.

Yellen said the persistent shortfall of inflation from the Fed’s 2 percent goal was the major piece of “undone work” she was leaving for Powell to figure out.

Newspapers in English

Newspapers from Philippines