Fed announces rate decision

The Federal Reserve took note of a resilient US economy Wednesday by raising its benchmark interest rate for the second time this year and signaling that it may step up its pace of rate increases.

Two additional rate hikes are predicted this year, for a total of four. In a statement released at the end of a two-day meeting, the Fed suggested that the United States economy is strong and not in need of a boost, according to the New York Times. USA payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years.

The Fed now sees gross domestic product growing 2.8% this year, slightly higher than previously forecast, and dipping to 2.4% next year, unchanged from policymakers' March projections.

But, he added, "We really don't see it in the numbers".

The unemployment rate, now at an 18-year low of 3.8 per cent, is expected to fall to 3.6 per cent this year, compared to the 3.8 per cent that the Fed projected in March.

The central bank said it expects two more rate hikes this year, indicating an increasingly positive view of the economic expansion. Fed officials forecast an unemployment rate in the fourth quarter of 3.5 percent in both 2019 and 2020.

The change will start in January following the meetings that are scheduled roughly once every six weeks, to give the Fed "more opportunities to explain our actions", Mr Powell told reporters.

Yields have been climbing this year, as markets position for a relatively more aggressive Fed amid inflation concerns.

A gradual rise in inflation is coinciding with newfound economic strength. Powell said incentives in the Republican tax cut legislation could boost investment and lead to higher productivity although the timing was uncertain. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late previous year. Not since 1969 has the jobless rate been lower.

"The decision you see today is another sign that the economy is in great" shape, Powell told reporters following the decision. It then raised rates once in 2015, once in 2016, three times in 2017 and now twice this year.

The Federal Reserve is guiding a US economy that is as close to ideal as it could have dreamed a decade ago, when the darkest days of the recession forced it to take big risks to protect workers, banks and economies around the world from further devastation.

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. When the Fed tightens credit, it aims to do so without derailing the economy.

At nine years, the economic expansion is now the second-longest in history. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on USA imports, which some studies show could cost the US close to 200,000 jobs.

  • Anthony Vega