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Fed raises interest rate, hints at two more hikes this year

By Sheetal Sukhija, Wisconsin State News
14 Jun 2018, 06:17 GMT+10

WASHINGTON, U.S. - In a highly anticipated move, the U.S. Federal Reserve voted to increase the target for its benchmark interest rate by 0.25 percent.

Fed officials have also indicated that two more hikes are expected this year, which is more than previously forecast.

On Wednesday, concluding a two-day meeting in Washington, the Fed lifted the target for the central bank's benchmark rate to 1.75 percent-2 percent, which is the highest level since 2008.

Since 2015, this was the seventh time the bank has raised rates and was the second Fed rate hike this year after it hiked the rate in March.

Citing the country’s solid economic expansion and job gains, Federal Reserve Chair Jerome Powell said job gains are boosting income and confidence, while foreign expansion and tax cuts support additional growth.

He said in a statement, "The main takeaway is that the economy is doing well.”

Fed policymakers noted in their statement that the labor market "has continued to strengthen and that economic activity has been rising at a solid rate."

The U.S. unemployment rate is currently at its lowest rate in nearly two decades, hovering at 3.8 percent.

Further, inflation is showing signs of starting to pick up.

Policymakers are now expecting stronger growth, lower unemployment and faster inflation than they did in March.

Projections released on Wednesday showed that they now predict the U.S. economy will grow 2.8 percent this year and unemployment is expected to fall to 3.6 percent.

However, Fed officials and economists are now worried that the low jobless rate could force employers to hike wages faster, as companies compete for workers, which they fear could spark higher inflation.

Fed policymakers however, expect the core inflation rate to rise to roughly 2 percent this year, which they believe is key to a healthy economy.

At the meeting, Powell acknowledged that concerns about trade are rising, pointing out that the bank had received anecdotal reports that the uncertainties are leading companies to hold off on investment and hiring.

He, however, reassured, "We really don't see it in the numbers."

The hike in the key interest rate on Wednesday is set to trigger higher rates on credit cards, home equity lines and other borrowing.

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