US Fed raises interest rates, expects 2 more hikes this year

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The Federal Reserve announced it will raise interest rates a quarter percentage point on Wednesday, and signaled that it could raise interest rates at least twice more this year.

Wednesday's action, which was widely expected, was the second Fed rate hike this year - and the seventh since it began boosting them in 2015.

Projections released after the Fed's two-day meeting in Washington show policymakers expect the United States economy will grow 2.8% this year, while unemployment falls to 3.6%.

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2.30pm EDT (18.30 GMT). Inflation by the Fed's preferred gauge would hit its 2 percent target this year and edge up to 2.1 percent over the next two years.

That is a welcome step-up from the roughly 2-percent growth averaged throughout the recovery, which was plagued by a series of crises overseas and uncertainties at home, delaying the Fed's tightening plans.

With employers hiring at a solid pace month after month, unemployment has reached 3.8 percent. The Fed anticipates that inflation will be 2.1% in 2019 and 2020, which is a little over its target rate of 2% through 2020, but is viewed as manageable.

In another slight change of language - something sure to catch the attention of Fed watchers - it said "further gradual increases" in the key rate "will be consistent with sustained expansion of economic activity, strong labour market conditions and inflation near the Committee's symmetric two per cent objective over the medium term".

The decision to raise rates comes as the USA unemployment rate hovers at 3.8% - the lowest rate in almost two decades - and inflation, which lagged the Fed's 2% target for years, shows signs of starting to pick up.

In addition to a new dot plot, the Fed updated its forecasts for economic growth and inflation.

Beginning in 2008 in the midst of the financial crisis, the Fed had kept its key rate unchanged at a record low near zero for seven years. When the Fed tightens credit, it aims to do so without derailing the economy.

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.

Also notable was that the Fed deleted about 80 words of its statement that said it expected the economy to "evolve in a manner that will warrant further gradual increases" in rates. All those countries have vowed to retaliate against any USA tariffs with their own penalties against US goods.

While many economists worry about a trade war harming growth, the Fed did not mention trade concerns in its statement. We learned that yesterday but getting the seal of approval from the central bank makes a difference.

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