Fed announces rate hike decision


After a two-day meeting, the Federal Open Market Committee unanimously voted to increase its benchmark fed funds rate by 25 basis points, to a range of 1.50% to 1.75%.

The dollar recorded its largest one-day loss in two months against a basket of currencies on Wednesday as Federal Reserve officials stuck to their view of three rate increases for 2018 as they want to see a further pickup in inflation.

In its statement, the Fed said the labor market "has continued to strengthen and that economic activity has been rising at a moderate rate". At the December meeting, Fed officials estimated 2.5% economic growth this year ahead of the passage of Republican tax cuts and plans to increase government spending.

US gold futures GCcv1 for April delivery settled up $9.60, or 0.7 percent, at $1,321.50 per ounce. Wednesday's forecast put the Fed long-term rate - the point at which its policies are neither boosting the economy nor holding it back - at 2.9 per cent.

But the Fed's new forecast does envision marked increases in economic growth compared with its previous estimate: It raises the estimate to 2.7 percent growth this year, up from 2.5 percent in the December projection, and 2.4 percent in 2019, up from 2.1 percent.

Members of the Federal Open Markets Committee, which votes on rates, predicted the U.S. economy will grow by 2.7% this year, faster than the 2.5% predicted in December.

The central bank is trying to balance a low unemployment rate with the potential for higher inflation. But it did boost its 2019 estimate from two hikes to three.

An increase would mark its sixth hike since late 2015 when the US central bank started gradually tightening monetary policy following a period of near-zero interest rates in the aftermath of financial crisis in 2008.

Powell's job is to keep the economy churning without starting a recession during his four-year term - a risk the Fed chair has said he does not see as imminent.

"The economic outlook has strengthened in recent months", the USA central bank said in a statement which followed its two-day meeting. As banks are charged more for money, they can raise rates on small business loans, credit cards and mortgages.

Despite speculation the FOMC may have used this month's meeting to signal an extra rate rise this year, its projections for 2018 remain at three in total, the same number as in 2017. Growth will be 2.4 percent next year, the Fed expects, up from 2.1 percent.

The average rate on a five-year Treasury-indexed adjustable-rate mortgages is now about 3.67 percent, according to Freddie Mac. Powell said Fed policymakers don't think changes in trade policy will affect their current economic outlook.

Inflation "is expected to move up in coming months and stabilise" around the Fed's target, it said.

That message has been echoed by Powell's colleagues on the Fed board.

Powell then commented on the strength of the economy and projections for future rate increases as inflation remains below the Fed's target of 2% despite a host of strengthening signs in the labor market.