US Fed raises lending rates by 25 bps to 1.75-2%
14 June 2018
The US Federal Reserve on Wednesday raised its benchmark overnight lending rates by a quarter percentage point, as the central bank continued its shift from the soft money policy it has been following till recently.
By raising its benchmark overnight lending rate a quarter of a percentage point to a range of between 1.75 per cent and 2 per cent, the Fed dropped its pledge to keep rates low enough to stimulate the economy "for some time" and signalled it would tolerate above-target inflation at least through 2020.
The Federal Open Market Committee noted that economic activity in the United States has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined.
Fed chairman Jerome H Powell, speaking at a news conference, said the economy had strengthened significantly since the 2008 financial crisis and was approaching a “normal” level that could allow the Fed to soon step back and play less of a hands-on role in encouraging economic activity.
“Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 per cent, indicating that longer-term inflation expectations are little changed, on balance,” Fed said.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. 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 per cent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realised and expected labour market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 per cent. Fed said its monetary policy stance remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 per cent inflation.
Reacting to the monetary policy announcement, the market index Dow weakened to show a loss of 0.2 per cent, but was already down slightly before the statement. The S&P 500 extended a slight loss and was also down 0.2 per cent.
The 10-year US Treasury note yield rose to 2.9884 per cent and the 2-year yield rose to 2.5901 per cent. The dollar index turned slightly positive.