Fed Raises Rates and Signals Faster Pace in Coming Years

Fed Raises Rates and Signals Faster Pace in Coming Years

The S&P 500 Index of USA stocks fell after the Fed decision, while benchmark 10-year yields were up to 2.98 percent from Tuesday's 2.96 percent. The Bloomberg dollar spot index, which tracks the performance of a basket of 10 global currencies against the greenback, climbed 0.1 percent on the day.

This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average.

The central bank also lifted its growth forecast to 2.8 percent this year, up a small amount from its projection of 2.7 annual growth in March. "Economic activity has been rising at a solid rate".

The central bank raised the federal funds rate to a 1.75-2 percent target range, the second increase under Fed Chairman Jerome Powell.

Powell will face reporters during a press conference at 2:30 p.m. ET.

The rate increase was in line with investors' expectations and showed policymakers' confidence in the economy's growth prospects, continued low unemployment and steady inflation. Unemployment is already at 3.8 percent, the lowest since 2000, and the Fed believes it will fall to 3.6 percent by the end of the year, which would be the best rate since the 1960s.

They see another three rate increases next year, a pace unchanged from their previous forecast. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run. That compares with March's forecasts for 3.8 percent this year and 3.6 percent in the following two years.

The Fed's short-term policy rate, a benchmark for a host of other borrowing costs, is now roughly equal to the rate of inflation, a breakthrough of sorts in the central bank's battle in recent years to return monetary policy to a normal footing. The index rose 1.8 percent in April from a year earlier.

The Federal Reserve expects the US gross domestic product to grow by 2.8% in 2018, up from March's forecast of 2.7%. The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 percent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth.

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