Fed raises rates, Powell talks future plans

How likely US Federal Reserve rate hike could impact India

With the unemployment rate at 3.8 percent - a level reached only twice before in the past half-century - Fed Chairman Jerome Powell and his colleagues have decided additional rate hikes will very likely be necessary later this year.

The Federal Reserve took note of a resilient US economy Wednesday by raising its benchmark interest rate for the second time this year and signaling that it may step up its pace of rate increases.

The Fed has raised rates seven times since late 2015 on the back of the economy's continuing expansion and solid job growth, rendering the language of its previous policy statements outdated.

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.

And a majority of policy makers said they now expect a total of four interest rate increases this year.

Opinion was more divided about 2019's increases, however, although the median outcome was in line with the Fed's own forecasts for three hikes.

The Federal Open Market Committee voted to lift the target range for the federal funds rate by 25 basis points to between 1.75% and 2%. The dollar pared some losses but was still trading lower against a basket of currencies. It's the second rate hike under Powell, a Republican appointed to lead the Fed by President TrumpDonald John TrumpWhat you need to know about Tuesday's elections Danny Tarkanian wins Nevada GOP congressional primary Laxalt, Sisolak to face off in Nevada governor's race MORE.

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Rates for savers have tended to lag the Fed's hikes. "The trajectory of United States inflation or the broader USA economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments.

"Job gains have been strong, on average, in recent months, and the unemployment rate has declined", the Fed said.

Most Federal Reserve officials now expect at least four rate increases this year, up from a previous projection in March of three rate increases, according to the Wall Street Journal. Inflation expectations are slightly higher this year compared to March's forecast of 1.9%. Should the Fed's expectations prove accurate, its rate policy would then be meant to slow the economy. "The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation". Interest rates on new fixed-rate mortgages could also climb.

Mr Powell called the figures "encouraging" but said the bank wants to see the economy sustain that rate of inflation before it declares victory.

Trump's imposition of tariffs on steel and aluminum imports has enraged US allies.

Individual Fed policymakers have expressed concerns about the economic risks of a broad tit-for-tat tariff retaliation, but have said they would not change their policies or forecasts until those risks are realized.

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