US Fed raises rates again

Federal Reserve Chair Janet Yellen has indicated more rate rises for 2017. Picture: AP

THE US Federal Reserve is raising its benchmark interest rate for the second time in three months and signalling that any further hikes this year will be gradual.

The move reflects a consistently solid US economy and will likely mean higher rates on some consumer and business loans.

The Fed’s key short-term rate is rising by a quarter-point to a still-low range of 0.75 per cent to 1 per cent.

The central bank said in a statement that a strengthening job market and rising prices had moved it closer to its targets for employment and inflation.

The message the Fed is sending is that nearly eight years after the US recession ended, the economy no longer needs the support of ultra-low borrowing rates and is healthy enough to withstand steadily tighter credit.

Federal Reserve policymakers expect to hike rates a total of three times this year, including the increase announced today. That’s the same as their December forecast. But more Fed officials now support that view: Nine of 17 Fed policymakers support three hikes, up from six in December.

The Fed also forecast three hikes in 2018, the same as they projected three months earlier, and between three and four increases in 2019.

Their mostly status quo outlook was also seen in their economic projections.

Fed policymakers project modest growth of 2.1 per cent this year and in 2018, slowing to 1.9 per cent in 2019. The unemployment rate should fall to 4.5 per cent at the end of this year and remain at that level through 2019, also unchanged.

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