GREAT AGAIN: Fed RAISES 2018 Economic Outlook, HIKES Interest Rates


The central bank raised the federal funds rate to a 1.75-2 percent target range, the second increase under Fed Chairman Jerome Powell.

The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the United States central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.

The median forecast of members of the Fed's rate-setting Federal Open Market Committee (FOMC) puts the benchmark at 3.1 per cent at the end of 2019, up from the previous 2.9 per cent, which signals four hikes next year rather than three.

At the end of March, the average interest rate charge on cards, according to the Fed, was 15.32%, an 18-year high. The step was needed, the Fed said, to be sure rates stay within the intended boundaries. With the economy now nine years into an expansion, the move reflects the steadiness of growth, the job market's strength and inflation that's finally reaching the Fed's 2 percent target level.

Trump's imposition of tariffs on steel and aluminum imports has enraged US allies. 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.

Policy makers said in a one-page statement that the labor market "has continued to strengthen" and than economic activity "has been rising at a solid rate". For 2020, the Fed foresees a median rate of 3.4 percent. After years in which the economy expanded at roughly a tepid 2 per cent annually, growth could top 3 per cent this year. The central bank is aiming to keep record low unemployment and a glut of federal spending from pushing inflation beyond the Fed's 2 percent target.

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"The Fed's path of gradual rate hikes and slow (balance) sheet reduction seems well established at this point".

This was the seventh rate hike since late 2015, when the Fed first began lifting interest rates from nearly zero. It then raised rates once in 2015, once in 2016, three times in 2017 and now twice this year.

Fed officials have begun to debate publicly how close the economy is to overheating. Prices did not spike in response to the vast monetary stimulus, nor has the job market cooled since 2015 when the Fed began tightening policy.

The Fed's meeting this week is to be followed by policy meetings of two other major central banks - the European Central Bank on Thursday and the Bank of Japan on Friday. But if it miscalculates and overdoes the credit tightening, it can trigger a recession.

The current economic expansion is the second-longest in US history, and will set a record if it lasts a bit more than a year longer. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001. All those countries have vowed to retaliate against any US tariffs with their own penalties against USA goods.