Federal Reserve raises interest rates

Federal Reserve expected to hike rates as Sterling slips

The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the U.S. central bank's shift from policies used to battle the 2007-2009 financial crisis and recession. Ahead of the announcement, markets were pricing in a almost 100% chance of a rate hike.

Fed officials expect to raise interest rates at least once more in 2018 and had been split on a possible fourth hike in their last meeting.

What took investors by surprise was the Fed's projection that it would increase rates twice in the next few months, which was faster than the market had expected.

But for now, the Atlanta Fed estimates the US economy is roaring at a 4.6 percent rate, a level it reached only twice since the recession. The statement the Fed issued today after its latest policy meeting ended suggested that he does. He'll likely address the decision to hike rates and the Fed's views on the overall economic outlook.

However, higher rates would help savers earn more interest on their deposits.

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.

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The median estimate for economic growth this year rose to 2.8 per cent from 2.7 per cent in March, with projections unchanged for 2.4 per cent in 2019 and 2 per cent in 2020.

The committee sees further declines the unemployment. After keeping interest rates low for years to boost growth, the central bank is now moving rates back to what economists say is a neutral position. The rate is estimated to fall 3.5% next year, through to 2020, down from the previous forecast of 3.6%.

After nine years of steady if uneven recovery, the United States is now growing at a pace topping 4 percent, unemployment is as low as it has been this century, and inflation has safely edged up toward an official target.

The higher rates should be a boon for savers, while increasing borrowing costs for households and businesses throughout the economy.

The use of the terms "symmetric" and "medium term" is a clear indication the Fed is not in a hurry to get inflation to 2 per cent, and will be comfortable if prices rise above that level for a short time. Inflation expectations are slightly higher this year compared to March's forecast of 1.9%. The Associated Press reported that while there have been increases, commodities prices other than those for food and energy decreased by 0.3 percent in the past year.

"In view of realised and expected labour market conditions and inflation, the Committee made a decision to raise the target range for the federal funds rate to 1-3/4 to 2 per cent". Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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