US Fed raises key interest rate amid stronger growth outlook

The Federal Reserve will almost certainly raise interest rates Wednesday

But U.S. wage growth has remained sluggish and household budgets are tight. If more people are jumping into the job market and not immediately finding work, it could actually keep the jobless rate from falling further in the short run, as we've seen in recent months. This week, Powell presided over a Fed policy meeting for the first time since becoming chairman.

The statement also declared, in a change from January, that "the economic outlook has strengthened in recent months". However, it disappointed currency traders who had bet it was prepared to raise rates perhaps four times this year as the jobs market approaches full employment.

Its latest median projection showed the Fed now expects the jobless rate to fall to 3.6 per cent next year, below the previous 3.9 per cent estimate, and stay there in 2020. The federal funds rate, which the Fed determines directly, sets the rate at which banks lend money to one another. At the same time, it increased its estimate for rate hikes in 2019 from two to three, reflecting an expectation of faster growth and lower unemployment. The yield on the 10-year Treasury note, a benchmark for mortgages and other loans, declined to 2.88 percent from 2.90 percent Tuesday.

Interest rates on home equity credit lines are lower, at around 5 percent. The Fed also signaled that there are two more rate hikes on the horizon in 2018, and raised speculation that they may even consider a third.

Taken together, the Fed's actions and forecasts suggest a belief that the economy remains sturdy almost nine years after the Great Recession ended.

The 2018 "dot" now sits at 2.125 percent - signaling three rate increases from the current 1.25-1.5 percent range, and four officials had higher projections at the December meeting.

As of January, the Fed's preferred inflation measure - core PCE - stood at 1.5 percent, far below the official 2 percent target.

The central bank is trying to balance a low unemployment rate with the potential for higher inflation. The Fed already has promised two additional rate hikes this year and more in 2019 as its benchmark federal funds rate climbs from historic lows during the Great Recession. Growth will be 2.4 percent next year, the Fed expects, up from 2.1 percent.

The committee's forecast for the long-run sustainable growth rate of the economy was unchanged at 1.8 per cent, suggesting policy makers are still skeptical of the effect of tax cuts on the economy's capacity for growth.

While Wednesdays move brings US interest rates to the highest levels in a decade, they are still far lower than the historic norm of about 5 percent.

The Fed will release its rate hike decision and updated forecasts at 2 p.m. ET.

And while it may sound like a misbegotten goal, there's a good reason the Fed sometimes aims to curb spending and slow the economy; otherwise, an overheating economy can trigger rising - even spiraling - inflation.

Federal Reserve Chairman Jerome Powell arrives or a news conference following the Federal Open Market Committee meeting in Washington, Wednesday, March 21, 2018. "But with the U.S. 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.

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