Fed raises interest rates in Powell's debut

Fed raises interest rates in Powell's debut

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

The Federal Reserve raised interest rates and forecast at least two more hikes for 2018, signaling growing confidence that USA tax cuts and government spending will boost the economy and inflation and lead to more aggressive future tightening.

US economic strength is evident with the unemployment rate at a 17-year low and companies receiving windfalls from President Donald Trump's tax cuts, which they may reinvest to create jobs and improve wages. It was also hinted that interest rates would be raised twice more this year, while forecasts were also raised for increases in 2019. The central bank upped its long-run estimate to 2.9% from 2.8% and it's likely to raise it even further, reversing a long process during which the Fed lowered its target. The move places USA interest rates in a band from 1.5 to 1.75% which is still very low by historic standards.

The "dot plot" shows an FOMC evenly split between three and four rate rises in the current calendar year.

"They're (business leaders and bankers) seeing it as a risk to the outlook", Powell said.

"At the same time, we want to avoid inflation running persistently below our objective, which could leave us with less scope to counter an economic downturn in the future". He replaced Democrat Janet Yellen last month.

There was no indication of the size and scope of the tariffs, which U.S. Trade Representative Robert Lighthizer said on Wednesday would target China's high-technology sector and could also include restrictions on Chinese investments in the United States.

Central bankers admitted to being befuddled by the absence of inflation a year ago despite the economic recovery and strong job market, but Wednesday's statement repeated the view that 12-month inflation is expected to move up to the Fed's 2% goal "over the medium term". The market, which was up before the Fed announcement, pulled back after the statement came out.

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But it did highlight "a sign of change" in relations with Washington and a "dramatic atmosphere for reconciliation" with Seoul . The commentary did not make direct reference to proposed talks between President Trump and North Korean leader Kim Jong Un.

In December, the Fed predicted U.S. gross domestic product (GDP) to grow 2.5 percent this year, 2.1 percent in 2019 and two percent in 2020.

"The upward revision to growth forecasts was not a surprise, but given low levels of inflation, the additional hikes forecast for 2019 and beyond was more hawkish than anticipated".

The Federal Reserve is sticking to a cautious strategy on raising interest rates in 2018, but some officials left scattered hints they are more anxious about rising inflation than the central bank let on.

Officials' growing optimism tracks with the expectations of many Wall Street analysts.

There have been positive technical signs including rebounds in the prices of big-cap stocks in the energy and petrochemical groups, as well as for mid-cap stocks, following rises in the SET Index, he said. "It could change up". Consumer spending, the economy's primary fuel, has slowed this year and has led many economists to downgrade their forecasts for growth in the January-March quarter.

"For every 100-basis-point increase in the fed funds rate, historically, it has been the case that the adjustable-rate mortgage rate would go up by 70 basis points", said Michael Cox, founding director of the O'Neil Center for Global Markets and Freedom at Southern Methodist University in Dallas, Texas. Yellen was the most powerful woman in the world, and most members of the Federal Reserve thought she did an excellent job managing economic growth.

First, and foremost, the Committee inserted into the statement the sentence, "The economic outlook has strengthened in recent months".

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