Fed raises rates, Powell takes questions

22 March, 2018, 01:59 | Author: Natasha Holloway
  • US Fed raises interest rates

The Federal Reserve voted to increase rates by 25 basis points, marking the sixth rate hike since 2015.

In its first policy meeting under new Fed chief Jerome Powell, the USA central bank said inflation should move higher amid a stronger economy after years below its 2 percent target. "The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation". At the December meeting, Fed officials estimated 2.5% economic growth this year ahead of the passage of Republican tax cuts and plans to increase government spending.

Facebook shares have lost about 9 percent in just two days, and hurt shares of other social media companies such as Twitter and Snap Inc as the issue raised broader questions about consumer privacy and whether tougher regulation is on the horizon. The US economy grew at an annualised rate of more than 3% during some quarters previous year, while the unemployment rate is hovering at 4.1% - the lowest since 2000.

Some hints may come when Powell and members of the Federal Open Market Committee release their revised economic forecasts.

The increase keeps benchmark rates at a historically low level.

Fed officials were split on whether this week's policy meeting was the appropriate time to signal a fourth rate hike in 2018.

Sterling finished up 1.01 percent at $1.4140 after data showed United Kingdom wages grew at their fastest pace in more than two years, supporting bets that the Bank of England would raise interest rates as early as May.

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"Chairman Powell's reiterating of the Fed's accelerating pace of this unwind is a reminder that real yields are likely to normalize, and yields of 4% or higher on the U.S. ten year treasury might not be so far away", Hyman said.

The central bank's decision was a response to a sunnier economic outlook, very low unemployment and rising wages.

"In theory, if you have lower unemployment, you should have higher inflation", North said, adding that "we haven't seen that in this recovery" for reasons including weak productivity growth. Job gains have been strong in recent months, and the unemployment rate has stayed low. Fed officials project 2-percent GDP growth In 2020.

It's also the first Fed meeting since Jerome Powell took over as chairman, although so far Powell hasn't made any major breaks with the policies of predecessor Janet Yellen. As banks are charged more for money, they can raise rates on small business loans, credit cards and mortgages.

"Many of the forces that acted as headwinds to U.S. growth and weighed on policy in previous years are generating tailwinds now", she said earlier this month in a speech pointing to the recent fiscal stimulus from tax cuts and higher spending. Bond yields are little changed after they jumped on Tuesday.

Inflation "is expected to move up in coming months and stabilize" around the Fed's target, it said.

The Fed is set to announce its first interest rate increase of the year, a testament to the continued strength of the economy and of the job market in particular.

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