Fed raises key rate and sees possible acceleration in hikes

13 June, 2018, 23:28 | Author: Brooke Harris
  • Fed raises key rate and sees possible acceleration in hikes

The Treasury yield curve from 5 to 30 years flattened to levels last seen in August 2007 after Federal Reserve officials hiked rates and signaled a faster pace of tightening ahead. It's the second rate hike under Powell, a Republican appointed to lead the Fed by President TrumpDonald John TrumpWhat you need to know about Tuesday's elections Danny Tarkanian wins Nevada GOP congressional primary Laxalt, Sisolak to face off in Nevada governor's race MORE.

The unanimous vote brings the federal funds rate to a range of 1.75-2%.

The US economy continues to strengthen, the Fed indicated, and it no longer needs the historically low interest rates that were put in place in the aftermath of the financial crisis to stimulate growth.

The so-called " dot plot" released Wednesday showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March.

USA unemployment is already at 3.8 per cent, the lowest since 2000, and the Fed believes it will fall to 3.6 per cent by the end of the year, which would be the best rate since the 1960s.

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Besides raising its projection for rate increases this year from three to four, the Fed removed a key sentence from the previous statement that had been viewed as foreseeing a need to keep rates low for an extended period. That could spark higher inflation. The Fed's new forecast showed inflation inching up only slightly over the next 2 1/2 years. The move reflects the economy's resilience, the job market's strength and inflation that's finally nearing the Fed's target level.

"The main takeaway is that the economy is doing very well", Fed Chairman Jerome Powell said at a news conference.

Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory.

Rates for conventional mortgages are likely to see more gradual change.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as a sturdy economy enters a 10th straight year of growth.

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