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Fed raises key interest rate by a quarter-point

Fed raises key interest rate by a quarter-point”

In December, officials said they expected unemployment to be 3.9 percent both this year and next. The rate hike is the first under new Fed Chairman Jerome Powell, who replaced Janet Yellen last month.

"We suspect the Fed is leaning on the mixed inflation data in wages along with the escalating risks of a trade war to buy some time before making material changes to their rate forecast", said Charlie Ripley, senior investment strategist for Allianz Investment Management.

You'll probably see the first sign of rising interest rates on your credit card bill within a few weeks, said Tendayi Kapfidze, chief economist for loan comparison site LendingTree.

If economic growth does pick up and the job market remains healthy, the Powell Fed is viewed as likely to accelerate its rate hikes, from the three it projected in December to four this year.

But because inflation has run below the Fed's target since they formally adopted it in 2012, markets don't have a good read on how policy makers would chart interest rate policy when inflation is above the target. But it shifted its plans for next year, calling for three more rate hikes instead of two. The median member again saw the rate ending 2018 in a range between 2% and 2.25%, suggesting two more hikes this year.

Analysts at ABN Amro also expect the dot-plot to rise reflecting higher interest rate expectations.

The Fed, under Yellen, pursued gradual rate increases and a highly choreographed sell-off of the portfolio of bonds it bought to help prop up the economy after the 2008 financial crisis.

Above, you can see the Fed's economic projections for 2018 compared with where the economy stood when they made them in December.

The economic outlook has strengthened in recent months.

"For every 100-basis-point increase in the fed funds rate, historically, it has been the case that the adjustable-rate mortgage rate would go up by 70 basis points", said Michael Cox, founding director of the O'Neil Center for Global Markets and Freedom at Southern Methodist University in Dallas, Texas. The Fed declared that inflation would rise to the Fed's 2% target in 2019 and that employment gains would remain strong. On the other hand, modest wage pressures despite an extended period of low unemployment could persuade the Fed to lower its estimate of the sustainable jobless rate. Not to mention that 2 percent is supposed to be an average, not a ceiling - meaning that actual inflation should be above that level half the time, something that hasn't happened in six years.

The announcement underscores the Fed's gathering confidence in the economy as well as its focus on the potential for inflation, which has remained persistently muted throughout the expansion.

The peso increased 1.89 percent at 18.4110 pesos per USA dollar after touching a 6-1/2 week high at 18.4150 pesos.

The Dow Jones shed nearly 45 points at 24,682. Wednesday's forecast put the Fed long-term rate - the point at which its policies are neither boosting the economy nor holding it back - at 2.9 percent. Wednesday's rate change is the sixth since 2015.

United States officials are tipped to confirm on Thursday additional investment restrictions on China to help close, what it says, is a $375bn trade deficit with the world's second largest economy.



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