US Federal Reserve raises interest rates

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The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat.

The Fed's new projection for the pace of rate hikes shows four rate this year and three in 2019 - both unchanged from its previous forecast in March - and one in 2020, down from the two that had been projected previously.

The unanimous vote brings the federal funds rate to a range of 1.75 to 2 per cent, but the quarterly economic forecasts show central bankers now expect the rate to end the year at 2.4 per cent rather than the 2.1 per cent projected in March. Borrowers are likely to see higher bills next month on credit cards and mortgages, especially those with adjustable rates.

By the end of next year, policy moves above their longer-run estimate of a neutral interest rate, a condition some economists would say is restrictive.

A decade after the recession, the Fed has made progress on its objectives.

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The already historically low unemployment is projected to fall even further, ending the year at 3.6 per cent before settling at 3.5 per cent in 2019 and 2020.

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

Interest rate hikes will hit consumers in their wallets. That's good news because it means the economy is largely moving on its own steam in the eyes of the Fed. "This change is only about improving communications". It would also allow the Fed to be less choreographed and more spontaneous in cutting or raising rates as economic conditions warrant.

He also announced that starting in January he'd take questions from the media after every meeting, though he cautioned that "having twice as many press conferences does not signal anything".

Economists had predicted the Fed would make this change to overcome the common view that the central bank will not change the benchmark interest rate at a meeting that does not include a press conference, which limits its options.

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The Federal Reserve expects the US gross domestic product to grow by 2.8% in 2018, up from March's forecast of 2.7%.

That is a welcome step-up from the roughly 2-percent growth averaged throughout the recovery, which was plagued by a series of crises overseas and uncertainties at home, delaying the Fed's tightening plans. The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 per cent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth.

In their statement, Fed policymakers noted that the labor market "has continued to strengthen and that economic activity has been rising at a solid rate".

Federal Reserve Chair Jerome "Jay" Powell said job gains are boosting income and confidence, while foreign expansion and tax cuts support additional growth. At this point, there's been little evidence that wage or price inflation is accelerating.

The Federal Reserve is guiding a US economy that is as close to ideal as it could have dreamed a decade ago, when the darkest days of the recession forced it to take big risks to protect workers, banks and economies around the world from further devastation. Fed officials repeated their assessment that "risks to the economic outlook appear roughly balanced". Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast.

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The tighter policy reflects expectations for stronger growth, lower unemployment and faster inflation than officials had anticipated in March.

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