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Fed announces US rate increase

[img]https://ichef.bbci.co.uk/news/320/cpsprodpb/80C1/production/_100516923_jeromepowell.jpg" width="976" height="549">
Federal Reserve Chair Jerome "Jay" Powell
The US central bank has said it will raise its benchmark interest rate citing a strengthened economic outlook.The Federal Reserve said it had decided to raise the rate by 0.25% to a target range of 1.5% to 1.75%.Policymakers also signalled they would increase rates twice more this year, while raising the forecast for rate hikes in 2019.Federal Reserve Chair Jerome "Jay" Powell also said some members are concerned about a trade war."They're seeing it as a risk to the outlook," Mr Powell said at a press conference at the close of the Fed's two-day meeting in Washington. He cited conversations between central bankers and business leaders.
What does the Fed expect[/img]

The Fed is trying to balance low unemployment with the potential for higher inflation spurred in part by federal government spending and tax cuts.So far the central bank has moved cautiously as it shifts the US away from the ultra-low rates put in place following the financial crisis.But there are new faces on the Federal Open Markets Committee, which votes on interest rates, raising questions about whether policymakers will move more quickly.Economic conditions have also shifted. The US economy grew at an annualised rate of more than 3% during some quarters last year, while the unemployment rate is hovering at 4.1% - the lowest since 2000.
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Inflation has continued to lag the Fed's 2% target rate, but analysts have said they expect wages and prices to increase this year.Mr Powell said the Fed is "alert" to the possibility of inflation and expects rates to rise in coming months, but is not expecting a sharp increase,"There's no sense in the data that we're on the cusp of an acceleration in inflation," he said.In a statement the Fed said its economic outlook had strengthened, but it also noted that household spending and business investment appear to have "moderated" from the end of 2017.A rise in the Fed's benchmark federal funds rate typically leads to higher rates for consumers and businesses.Savers benefit, but borrowing becomes more expensive, which can dampen activity in industries such as housing and car sales and raise costs for businesses that rely on debt.
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