US Fed hikes interest rate and signals more increases

The US Federal Reserve raised its benchmark lending rate a quarter point and continued to project two more increases this year, signalling more vigilance as inflation approaches its target.

“In view of realised and expected labour market conditions and inflation, the committee decided to raise the target range for the federal funds rate,” the Federal Open Market Committee said yesterday.

Investors had almost fully expected the increase to a range of 0.75% to 1% following unusually clear signals from policy makers including chair Janet Yellen.

The US economy has mostly met the central bank’s goals of full employment and stable prices, and may get further support if President Trump delivers fiscal stimulus.

For now, officials stuck with their “gradual” approach to tightening monetary policy, while removing the word “only” when a previous statement called the approach “only gradual.”

Central bankers left unchanged their median projections for three quarter percentage-point increases in 2018.

“The committee expects that economic condition will evolve in a manner that will warrant gradual increases in the federal funds rate,” the Fed statement said.

They described jobs gains as “solid” and said business investment “appears to have firmed somewhat.” Inflation, the statement said, is “moving close” to the committee’s 2%.

US central bankers left unchanged their forecast for 2017 GDP growth at 2.1%.

Investor and business confidence has soared since Mr Trump won the US presidency, buoyed by his vows to cut taxes, lift infrastructure spending and ease regulations. Still, economic data don’t show an economy that’s heating up rapidly.

Bloomberg