US Federal Reserve raises key interest rate to 1.75-2%

According to CNBC, the Reserve released new data this week showing the GDP forecast rose to almost 3%, up from the previous predictions of 2.7%.

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".

In raising its benchmark overnight lending rate a quarter of a percentage point to a range of between 1.75% and 2%, the Fed dropped its pledge to keep rates low enough to stimulate the economy "for some time" and signalled it would tolerate above-target inflation at least through 2020.

Read the full report at CNBC.

In a notable change to its statement, the Fed removed language indicating that it expected the economy to grow at a pace warranting "gradual" rate increases. This was the second hike this year, up from March's increased range of 1.5 to 1.75 percent.

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Wednesday's action, which was widely expected, was the second Fed rate hike this year - and the seventh since it began boosting them in 2015. The average rate for a 30-year fixed mortgage hit a high of 4.8 percent in the last week of may before dropping slightly.

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.

Projections released after the Fed's two-day meeting in Washington show policymakers expect the USA economy will grow 2.8% this year, while unemployment falls to 3.6%. The rate is closely tied to adjustable-rate loans, such as home-equity lines of credit and credit cards.

Fed officials and many economists worry that the low jobless rate could force employers to hike wages faster, as companies compete for workers. "The Fed is prepared to be quicker about pushing rates higher". 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. Officials also said that "indicators of longer-term inflation expectations are little changed". Risks to the economic outlook appear roughly balanced. That compares with March's forecasts for 3.8 per cent this year and 3.6 per cent in the following two years. "Powell seems comfortable exploring the lower reaches of the unemployment rate given few indications it is resulting in stronger inflation pressures".

The Fed said its policy of further gradual rate increases will be "consistent with a sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2% objective". This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and worldwide developments.

  • Darren Santiago