US Federal Reserve raises interest rates

US Federal Reserve raises interest rates

The Federal Reserve has raised its benchmark interest rate for the second time this year and signaled that it may step up its pace of rate increases because of solid us economic growth and rising inflation.

The decision to raise rates comes as the USA unemployment rate hovers at 3.8% - the lowest rate in almost two decades - and inflation, which lagged the Fed's 2% target for years, shows signs of starting to pick up.

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

In its quarterly Summary of Economic Projections, officials projected the Fed's preferred inflation measure will accelerate only slightly, ending this year at 2.1 per cent rather than 1.9 per cent, and holding at that level through 2020.

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Asian shares edged down on Thursday after the Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening for the rest of the year, while concerns about U.S.

Here's the Fed's full statement: "Information received since the Federal Open Market Committee met in May indicates that the labour market has continued to strengthen and that economic activity has been rising at a solid rate".

The Fed's latest projections show unemployment falling to 3.6 percent in 2018.

"Job gains have been strong, on average, in recent months, and the unemployment rate has declined", the Fed said.

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They see another three rate increases next year, a pace unchanged from their previous forecast.

U.S. companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 per cent this year. Interest rates on new fixed-rate mortgages could also climb. The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy.

That index now is at 2 per cent but other measures of consumer and producer prices have accelerated, pushed by rising fuel prices, as well as metals prices that could be the result of the steep import tariffs President Donald Trump imposed. The index rose 1.8 per cent in April from a year earlier. They signaled previously that they wouldn't overreact if inflation overshot the target, but they haven't said how much of an overshoot they will tolerate, or for how long.

The FOMC's economic growth forecasts were little changed, with 2018 GDP seen rising 2.8 per cent rather than 2.7 per cent, but unchanged at 2.4 per cent in 2019, and 2 per cent in 2020.

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Investors were expecting the increase.

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