Federal Reserve raises interest rates

Credit AP  JACQUELYN MARTIN				“The economy is doing very well. Most people who want to find jobs are finding them,” Fed chief Jerome Powell said Wednesday

Investors will be listening to Federal Reserve chair Jerome Powell's second press conference as leader of the USA central bank for clues on how the institution is factoring trade conflicts and global tensions into its strategy as it continues on the path toward policy normalization.

Two additional rate hikes are predicted this year, for a total of four. And that means higher interest rates on plastic.

He added that continued steady rate increases would nurture the expansion, as the Fed approaches a sort of sweet spot with its employment and inflation goals largely met, the economy withstanding higher borrowing costs and no sign of a spike in inflation.

The federal funds target rate, which is now between 1.75 and 2 percent, is the highest it's been in almost a decade, indicating that the nation's central bank has confidence the economy will continue to expand.

"The labour market is getting tighter, and price pressures are picking up", said Greg McBride, chief financial analyst at Bankrate.com.

The ongoing economic expansion coupled with solid job growth has pushed the Fed to raise rates seven times since late 2015, rendering the language of its previous policy statements outdated.

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

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The latest rate increase was in line with investors' expectations ahead of the release of the policy statement. The Fed's new projection for the pace of rate hikes shows four this year, three in 2019 and one in 2020.

At a news conference, Powell sought to portray the Fed's actions as evidence mainly that the economy is doing well and not that the central bank is eager to accelerate its rate increases.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as a sturdy economy enters a 10th straight year of growth. The most immediately affected will be credit-card interest rates, which are subject to near-instantaneous revision to track the federal funds rate.

USA unemployment dropped to 3.8% in May, its lowest level since April 2000 and one of the lowest levels since the second world war.

The Fed offered an improved forecast for unemployment this year, lowering its forecast to 3.6%.

This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average.

After keeping interest rates low for years to boost growth, the central bank is now moving rates back to what economists say is a neutral position. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on USA imports, which some studies show could cost the US close to 200,000 jobs.

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