Fed raises key interest rate by a quarter-point
- Author: Eleanor Harrison Mar 22, 2018,
Mar 22, 2018, 0:50
Shortly after he took over the Fed in February Mr Powell signalled the United States had hit an important turning point, as previous drags, including fiscal policy, reversed direction and provided a lift to growth.
The Fed announced it will raise the benchmark Fed funds rate to a range between 1.5% and 1.75%.
In announcing its decision, the Fed's policy-setting open market committee said that since it met in January the USA job market has continued to strengthen and economic activity has been rising moderately.
The increase keeps benchmark rates at a historically low level.
The unanimous decision on Wednesday's rate hike signals to Wall Street that Powell, for the time being, will stick with his precedessor Janet Yellen's plans for gradual rate increases.
The announcement underscores the Fed's gathering confidence in the economy as well as its focus on the potential for inflation, which has remained persistently muted throughout the expansion.
But consider that approximately $62.50 a year has already been added as a result of the Fed's previous five rate hikes since late 2015, and interest payments may be up by $100 at the end of the year.
Officials also increased their expectations for economic growth this year in the United States, declaring that "the economic outlook has strengthened in recent months".
They made this point explicit in a statement released Wednesday, saying, "In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation".
A weaker dollar and strong job creation is also forecast to drive growth. The inflation pickup officials have been waiting for still hasn't materialized, wages are ticking higher but hardly surging, economic growth is chugging along and the job market continues to pull people off the sidelines.
Bank of America, Wells Fargo and other bank stocks, which can benefit from higher short-term rates, especially when long-term interest rates rise even more, were only slightly higher before the Fed meeting statement on Wednesday, though JPMorgan Chase saw healthier gains. Prior to that, the central bank held rates near zero for seven years to encourage borrowing and spending and help support the recovery from the Great Recession.
In the immediate aftermath of the rate announcement, stock indices in the USA moved higher.
Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Fed's 2% objective over the medium term.
Diane Swonk, chief economist at Grant Thornton, said she expects Powell to be "optimistic in his tone regarding the outlook for the overall economy".
But among the Fed officials who met in Washington this week, Powell said, "there's no thought that changes in trade policy should have any effect on the current outlook". But he said trade policy "has become a concern" for business leaders a round the country.
Powell will take questions from reporters at his first press conference a half-hour later at 2:30 p.m. ET.