Fri, Jun 15, 2018 - Page 10 News List

US Fed move indicates a more aggressive strategy

AFP, WASHINGTON

The US Federal Reserve on Wednesday raised the benchmark lending rate for the second time this year, and signaled it would be more aggressive about rate increases this year and next year amid “strong” economic growth.

Yet, although he acknowledged concern among businesses nationwide about the uncertainty created by US President Donald Trump’s abrasive trade policies, Fed Chairman Jerome Powell stressed that “the US economy is in great shape.”

The unanimous vote the Fed’s rate-setting Federal Open Market Committee (FOMC) brings the federal funds rate to a range of 1.75 to 2 percent, and indicated there would be two more rate increases this year and four next year, one more than previously expected.

Powell downplayed concerns about accelerating inflation, saying that the central bank would not overreact to an expected uptick driven by the recent increase in oil prices and would aim for the rate to hold at about 2 percent for a “sustained” period.

“We know inflation is going to bounce around,” he said. “We didn’t overreact, I think, to inflation being under 2 percent. We won’t overreact to it being over 2 percent.”

The Fed last raised the benchmark in March, the sixth increase since December 2015 as it tries to keep the economy growing at a sustainable pace without fueling inflation.

Rising rates are unlikely to derail economic growth, which the committee now characterizes as “strong” rather than “moderate,” the FOMC statement said.

The Fed would continue to watch prices and employment data closely to gauge the impact of inflation and the trade policies on the economic outlook, Powell said.

The quarterly economic forecasts show central bankers expect the benchmark rate to end the year at 2.4 percent rather than the 2.1 percent projected in March and the median forecast for the end of next year is 3.1 percent, up from the previous 2.9 percent, which signals four hikes this year and next.

The recent tax cuts are expected to provide stimulus to the economy, Powell added.

However, the FOMC’s economic growth forecasts were little changed, with this year’s GDP seen rising 2.8 percent rather than 2.7 percent, but unchanged at 2.4 percent for next year and 2 percent for 2020.

The already historically low unemployment rate is projected to fall even further, ending the year at 3.6 percent before settling at 3.5 percent next year and in 2020.

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