US Federal Reserve raises interest rates

US Federal Reserve raises interest rates

The Fed's twin mandate is to bolster employment while controlling inflation, and in the current environment more rate rises appear inevitable.

"In view of realized and expected labor market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 percent", read a portion of a Federal Open Market Committee statement released Wednesday afternoon.

In a notable change to its statement, the Fed removed language indicating that it expected the economy to grow at a pace warranting "gradual" rate increases.

The unemployment rate, now at an 18-year low of 3.8 per cent, is expected to fall to 3.6 per cent this year, compared to the 3.8 per cent that the Fed projected in March.

Announcing the decision to increase its target for the fed-funds rate to a range of 1.75% to 2%, the Fed described the United States jobs market as "strong" and said economic activity had been rising at "a solid rate".

Economists had predicted the Fed would make this change to overcome the common view that the central bank will not change the benchmark interest rate at a meeting that does not include a press conference, which limits its options.

Beginning in 2008 in the midst of the financial crisis, the Fed kept its key rate unchanged at a record low near zero for seven years.

More news: Bethesda Softworks Announces 'Fallout 76' Release Date and New 'Elder Scrolls' Game

Fed officials project gross domestic product increasing 2.8 percent this year, up from an earlier projection of 2.7 percent. In the longer run, it maintained the forecast for 1.8% growth.

Following its two-day monetary policy meeting, the Federal Reserve raised interest rates by 25 basis points Wednesday, in line with expectations.

Most Federal Reserve officials now expect at least four rate increases this year, up from a previous projection in March of three rate increases, according to the Wall Street Journal. That's weaker than the White House's forecast for 3% growth in 2021, suggesting the Fed is less optimistic about the boost from tax cuts.

Yields have been climbing this year, as markets position for a relatively more aggressive Fed amid inflation concerns.

"Economic activity has been rising at a "solid" rate, the Fed's statement said, marking an upgrade from "moderate" in the previous statement". Job gains have been strong, on average, in recent months, and the unemployment rate has declined.

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.

That's a welcome change from recent years when Fed policymakers fretted about an inflation rate well below target. "I think it's more just, we are just looking at the economy and what does it need and how do we sustain the expansion, keep the labour market strong and try to keep inflation near 2 percent". This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments.

Related Articles