Federal Reserve raises interest rates

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"Economic activity has been rising at a "solid" rate, the Fed's statement said, marking an upgrade from "moderate" in the previous statement". The number viewing three or fewer hikes as appropriate fell to seven from eight.

Economists said the Fed left little doubt that it's prepared to increase the pace of its credit tightening to guard against high inflation later on.

Federal Reserve Chairman Jerome Powell spoke, March 21, following the Federal Open Market Committee meeting in Washington.

The federal funds rate, which helps determine rates for mortgages, credit cards and other borrowing, now stands at a range of 1.75% to 2%. The Fed had said its key rate "is likely to remain, for some time, below levels that are expected to prevail in the longer run".

This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average.

In another hawkish development, the Fed has also removed its forward guidence in its monetary policy statement. Investors had given just over a 91% chance of a rate rise on Wednesday, according to an analysis by CME Group.

The US Federal Reserve raised the benchmark lending rate on Wednesday, the second increase of the year, and signalled it will be more aggressive about rate increases this year and next amid "strong" economic growth.

Powell is scheduled to speak to reporters Wednesday afternoon.

In a technical move, the central bank also made a decision to set the interest rate it pays banks on excess reserves - its chief tool for moderating short-term interest rates - at just below the upper level of its target range.

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. At the same time, they project the unemployment rate to fall to 3.6 percent this year, down from earlier projections of 3.8 percent. 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. It also forecast an even lower unemployment rate of 3.5% for 2019 and 2020.

In its updated forecasts, the Fed envisions stronger growth this year - 2.8 per cent, up from the 2.7 per cent it predicted in March. Estimates of the long-run sustainable unemployment rate were unchanged at 4.5 per cent.

The Federal Reserve expects the US gross domestic product to grow by 2.8% in 2018, up from March's forecast of 2.7%. 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. Economic activity is projected to expand 2.4% in 2019, unchanged from the previous forecast; finally, the economy is expected to grow 2.0% in 2020, unchanged from the previous forecast.

Rates for savers have tended to lag the Fed's hikes.

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