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

"The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee's symmetric 2 percent objective over the medium term", the statement said.

The US Federal Reserve has raised its benchmark lending rate, the second increase of the year.

The Fed announced the rate rise at the close of a two-day meeting in Washington.

"Most people who want to find jobs are finding them. The overall outlook for growth remains favourable".

The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat.

The so-called "dot plot" released with their decision showed eight Fed policy makers expected four or more quarter-point rate increases for the full year, compared with seven officials during the previous forecast round in March. The Fed's new projection sees inflation at 2.1 percent, compared with 1.9 percent in its March forecast. The mean projected Fed Funds rate barely changed across all horizons.

Oil prices, which had started the day in the red, settled higher after a report by the Energy Information Administration indicated U.S. crude inventories fell more than anticipated last week and gasoline and distillate stocks surprised with declines.

The dollar index against a basket of six major currencies dipped 0.2 percent to 93.525 after briefly rising to 94.028 on Wednesday. The Fed chief now holds four such events each year.

That's a welcome change from recent years when Fed policymakers fretted about an inflation rate well below target. Total rate hikes projected for 2018 is up to four from three previously.

United States companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 per cent this year. For 2020, the Fed foresees a median rate of 3.4 per cent.

The Fed statement also underscored the committee's commitment to growth even though it was notching up the pace of rate hikes this year.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 per cent in 2020 before dropping to 2.9 per cent in the longer run.

Along with rising interest rate expectations.

Treasury yields rose following the rate announcement. "I think it's more just, we are just looking at the economy and what does it need and how do we sustain the expansion, keep the labour market strong and try to keep inflation near 2 percent".

- FOMC raises benchmark interest rate to range of 1.75-2.00%, as was expected by markets. The step was needed, the Fed said, to be sure rates stay within the intended boundaries. The Trump administration's move to impose tariffs on steel and aluminum imports already has affected prices paid by construction firms and other metal users, and some of those costs are likely to spill down to consumers.

  • Eleanor Harrison