US Federal Reserve raises interest rates

US Federal Reserve raises interest rates

US Federal Reserve raises interest rates

(Kitco News) - Gold prices are holding steady just below the psychological barrier of $1,300 an ounce after the Federal Reserve suggested that it will hike interest rates more aggressively this year and the next as the US economy continues to grow.

The Federal Reserve on Wednesday raised interest rates 0.25 points as the bank aims to prevent a tight labor market from driving inflation to unsustainable levels.

The nightmares that long haunted both hawks and doves have not come to pass, even as the Fed held interest rates near zero for years and snapped up some $3.5 trillion in bonds in an extraordinary effort to boost the recovery.

"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 per cent inflation objective".

In comparison, the Reserve Bank kept Australia's official cash rate at 1.5 per cent, its record low for the past 20 months.

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

They expect the core inflation rate to rise to roughly 2% this year.

And a majority of policy makers said they now expect a total of four interest rate increases this year.

The Fed also signaled that it may raise rates twice more in 2018, with Fed Chair Jerome Powell saying that the USA economy was in "great shape".

In addition to a new dot plot, the Fed updated its forecasts for economic growth and inflation.

The new interest rate guidance shows the Fed will continue to raise short-term rates after reaching a level Fed officials call neutral level, which is where rates neither stimulate nor slow the economy. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late previous year. It then raised rates once in 2015, once in 2016, three times in 2017 and now twice this year. But if it miscalculates and overdoes the credit tightening, it can trigger a recession. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001.

Fed officials and many economists worry that the low jobless rate could force employers to hike wages faster, as companies compete for workers. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on US imports, which some studies show could cost the USA close to 200,000 jobs. We learned that yesterday but getting the seal of approval from the central bank makes a difference.

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