The US Federal Reserve has raised interest rates and signalled two more hikes this year
The US Federal Reserve has raised its benchmark interest rate by a quarter of a percentage point and signalled two more hikes in 2018 as it pointed to a strengthening US economy.
The Fed raised rates to a range of 1.5 per cent to 1.75 per cent, as was widely expected, and newly appointed chairman Jerome Powell indicated that inflation should “move up in coming months and stabilise” at the two per cent target.
“The economic outlook has strengthened in recent months,” the US central bank said in a statement which followed its two-day meeting.
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US indexes lifted following the announcement, with the Dow Jones rising as much as one per cent.
US 10-year Treasury yields climbed to hit a one-month high while the dollar dropped against a basket of major currencies. The dollar index was down 0.71 per cent at 89.729 at the time of writing.
The pound rose nearly one per cent against the dollar, hitting $1.4134.
Mark Nash, the head of fixed income at Old Mutual Global Investors said: “A relaxed Fed will support easy financial conditions, risk appetite and may hurt the US dollar in the near term. However, it’s too early to call the end to market volatility seen in 2018.”
“Jerome Powell was able to play it safe in his first meeting without doing much. But with the US output gap closing, and fiscal policy ramping up, it’s a matter of time before he will need to make tougher decisions that really might upset his boss,” Nash said.
Tim Foster, the fixed income portfolio manager at Fidelity International said:
The message in a nutshell is that data, so far, is still not strong enough to justify a faster hiking cycle this year.
Further down the line, however, things are looking brighter, with either lingering slack or a long-awaited pick-up in productivity that will keep inflation under control.
“This is by all means a “hopeful” Fed that’s shifting away from the data-dependent approach that Janet Yellen got us used to. In our view, however, something will eventually have to give, and the Fed’s confidence in their ability to stay on the rate path they set may soon be tested by either the economy or the market,” Foster added.
Read more: New Fed boss Jerome Powell says “gradual” rate rises are needed