Fed raises interest rates for second time this year

Published: June 14, 2018 12:52:26 | Updated: June 15, 2018 12:00:15


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The US Federal Reserve on Wednesday raised short-term interest rates by a quarter of a percentage point, its second rate hike this year and the seventh since late 2015.

In view of realised and expected labour market conditions and inflation, the Fed decided to raise the target range for the federal funds rate to 1-3/4 to 2 per cent, the central bank said.

It said the US labour market has "continued to strengthen" and economic activity has been "rising at a solid rate", with household spending picking up and business fixed investment growing strongly.

The central bank also said both overall inflation and so-called core inflation for items other than food and energy "have moved close to 2.0 per cent", suggesting that Fed officials are getting increasingly confident about inflation to reach its 2.0-per cent target.

In its latest forecast released on Wednesday, the central bank expected the US economy to grow at 2.8 per cent this year, a little higher than 2.7 per cent estimated in March, reports Xinhua.

The US unemployment rate is expected to drop to 3.6 per cent by the end of the year, lower than 3.8 per cent previously estimated.

Solid economic growth and tumbling unemployment are likely to keep the Fed on a steady path toward tightening monetary policy to prevent the US economy from overheating, analysts said.

Fed officials envisioned four rate hikes this year, up from three estimated in March, according to the median forecast for the federal funds rate.

Its policymakers also pencilled three rate increases in 2019 and one in 2020.

Fed Chairman Jerome Powell believed that a gradual pace of interest rate hikes remains the appropriate path for the central bank to sustain economic expansion.

Wednesday's announcement marked the Fed's seventh rate hike of this tightening cycle beginning December 2015 and the second move under Powell, who took the helm of the central bank in February.

About 84 per cent of economists polled by The Wall Street Journal earlier this month estimated that the Fed would raise interest rates again at its September policy meeting.

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