Federal Reserve’s modest raise to US benchmark interest rate

THE Federal Reserve is raising its benchmark interest rate to reflect a solid US economy and signalling that it is sticking with a gradual approach to rate hikes for 2018 under new chairman Jerome Powell.

The Fed said it expects to increase rates twice more this year. At the same time, it increased its estimate for rate hikes in 2019 from two to three, reflecting an expectation of faster growth and lower unemployment.

The central bank boosted its key short-term rate by a modest quarter-point to a stilllow range of 1.5% to 1.75% and said it will keep shrinking its bond portfolio.

Both steps show confidence that the economy remains sturdy nearly nine years after the Great Recession ended. The actions mean consumers and businesses will face higher loan rates over time.

The Fed’s rate hike marks its sixth since it began tightening credit in December 2015. The action was approved 8-0, avoiding any dissents at the first meeting that Mr Powell has presided over as chairman since succeeding Janet Yellen last month.

Some investors had speculated that Mr Powell might move to impose his mark on the central bank by indicating a faster pace of rate hikes for 2018.

But the new economic forecast made no change to the December projection for three hikes this year.