Published: Wed, June 13, 2018
Finance | By Loren Pratt

Fed raises key interest rate and sees possible acceleration in hikes

Fed raises key interest rate and sees possible acceleration in hikes

The Federal Reserve increased a key interest rate again Wednesday, which will trigger higher rates on credit cards, home equity lines and other kinds of borrowing. 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.

Powell was speaking at a press conference after the Fed announced its decision to raise interest rates.

Fed officials expect to raise interest rates at least once more in 2018 and had been split on a possible fourth hike in their last meeting. Unemployment, now at an 18-year low of 3.8 percent, would drop to 3.6 percent by year's end and to 3.5 percent in 2019 and 2020 - levels not seen in 49 years.

The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective". The unemployment rate is seen falling to 3.6 percent in 2018, compared to the 3.8 percent forecast in March.

A global trade war would risk cutting into USA economic growth by depressing American export sales and raising inflation by making consumers and businesses pay more for imports.

Core inflation projections, which strip out volatile food and energy prices, is expected to tick slightly higher to 2.0% this year, up from March's projection of 1.9%. 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. The move reflects the economy's resilience, the job market's strength and inflation that's finally nearing the Fed's target level. And their rate increases are addressing the "perceived threat of inflation", not an immediate inflation problem, he said. In the United Kingdom, the Bank has stopped actively buying financial assets and interest rates are up a little from their lows.

Rates for conventional mortgages are likely to see more gradual change.

Greg McBride, chief financial analyst for the interest rate website, said that could "squeeze" families if wage growth remains sluggish.

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