US Fed raises interest rates for second time this year

0 Comment(s)Print E-mail Xinhua, June 14, 2018
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The U.S. Federal Reserve on Wednesday raised short-term interest rates by a quarter of a percentage point, its second rate hike this year and the seventh since late 2015.


"In view of realized and expected labor market conditions and inflation, the (Federal Open Market) Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent," the central bank said in a statement after concluding a two-day meeting.


The Fed said the U.S. labor market has "continued to strengthen" and economic activity has been "rising at a solid rate," with household spending picking up and business fixed investment growing strongly.


The Fed also said both overall inflation and so-called core inflation for items other than food and energy "have moved close to 2 percent," suggesting that Fed officials are getting increasingly confident about inflation to reach its 2-percent target.


Despite the rate hike, the U.S. dollar index, which measures the greenback against six major peers, was down 0.16 percent at 93.670 in late trading on Wednesday.


The U.S. benchmark indexes also headed slightly lower, with the Dow Jones Industrial Average shedding 0.47 percent, the S&P 500 losing 0.40 percent, and the Nasdaq Composite Index down 0.11 percent.


In its latest forecast released on Wednesday, the central bank expected the U.S. economy to grow at 2.8 percent this year, a little higher than 2.7 percent estimated in March. The U.S. unemployment rate is expected to drop to 3.6 percent by the end of the year, lower than the 3.8 percent previously estimated.


Solid economic growth and tumbling unemployment are likely to keep the Fed on a steady path toward tightening monetary policy to prevent the U.S. economy from overheating, analysts said.


Fed officials envisioned four rate hikes this year, up from three estimated in March, according to the median forecast for the federal funds rate. Fed policymakers also penciled three rate increases in 2019 and one in 2020.


Fed Chairman Jerome Powell believed that a gradual pace of interest rate hikes remains the appropriate path for the central bank to sustain economic expansion.


"We continued to believe that a gradual approach for increasing the federal funds rate will best promote a sustained expansion of economic activity, strong labor market conditions, and inflation near our symmetric 2 percent goal," Powell said Wednesday at a press conference.


"We are aware that raising rates too slowly might raise the risk that monetary policy would need to tighten abruptly down the road in response to an unexpectedly sharp increase in inflation or financial excesses, jeopardizing the economic expansion," he said, adding that the U.S. economy could weaken and inflation could continue to run persistently below the 2-percent target if the central bank raises interest rates too rapidly.


Powell also said that the central bank will hold a press conference after every policy meeting starting in January 2019.


"That will give us more opportunities to explain our actions and to answer your questions," Powell told reporters after a two-day policy meeting.


The Fed holds eight policy meetings every year and the chairman currently holds quarterly press conferences during the months of March, June, September and December.


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