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Federal Reserve raises interest rates and signals faster hikes on the way

Posted at 2:51 PM, Jun 13, 2018

The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year.

Interest rates are going up again as the economy gets hotter.

The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year.

And a majority of policy makers said they now expect a total of four interest rate increases this year. Fed officials had been split about whether to raise rates three times this year or four.

The decision reflected an economy that’s getting even stronger. Unemployment is 3.8 percent, the lowest since 2000, and inflation is creeping higher. The Fed is raising rates gradually to keep the economy in check.

“The main takeaway is that the economy is doing very well,” Fed Chairman Jerome Powell said at a news conference. “Most people who want to find jobs are finding them, and unemployment and inflation are low.”

Policymakers said in a one-page statement that the labor market “has continued to strengthen” and than economic activity “has been rising at a solid rate.”

They lifted the federal funds rate, which helps determine rates for mortgages, credit cards and other borrowing, to a range of 1.75 to 2 percent.

The decision was driven by “indications that inflation is right around the corner,” said Jason Reed, an economist and finance professor at the University of Notre Dame’s business school.

Inflation, which has been mysteriously low during the long economic recovery, has finally passed 2 percent, the level the Fed considers healthy.

The Fed’s preferred measure of inflation, which strips out food and energy prices, climbed in May to 2.2 percent and registered the biggest annual jump in six years. The Fed expects inflation higher than 2 percent over the next two years, according to its latest projections.

Fed officials have begun to debate publicly how close the economy is to overheating. They signaled previously that they wouldn’t overreact if inflation overshot the target, but they haven’t said how much of an overshoot they will tolerate, or for how long.

The unemployment rate is 3.8 percent, the lowest since 2000 and tied for the lowest reading since 1969.

The Fed offered an improved forecast for unemployment this year, lowering its forecast to 3.6 percent. It also forecast an even lower unemployment rate of 3.5 percent for 2019 and 2020.