Federal Reserve raises interest rates again

The US Federal Reserve has raised interest rates again.

Officials increased the target for the bank’s benchmark rate by 0.25%, to a range of 2%-2.25%. A majority of members also said they expect another rise before the end of the year.

The move marks the bank’s eighth rate rise since 2015, continuing its policy of gradual rate rises.

Now investors are looking for clues about how high the Fed might go or signs its pace could accelerate.

So far, US interest rates remain relatively low, reflecting the Fed’s decision to lower them dramatically during the financial crisis in an effort to encourage borrowing and boost economic activity.

But Mr Powell and other economists say the economy is strong enough now that such stimulus is no longer necessary – a shift the Fed marked on Wednesday by ending its description of its policy as “accommodative”.

Wednesday’s rate rise “yet again demonstrates the Fed’s faith that it can continue to raise rates gradually without slowing economic growth,” said Kully Samra, UK managing director of Charles Schwab.

US gross domestic product grew at an annual pace of more than 4% in the second quarter of this year, and the unemployment rate continues to hover below 4% – near historic lows.

Price inflation, which had been sluggish, has also started to pick up, hitting the Fed’s 2% target – and exceeding it by some measures.

Officials now expect the US economy to grow by 3.1% this year – faster than the 2.8% forecast in March, according to projections released after the meeting.

Their predictions for inflation remained unchanged at around 2%.

The projections show Fed officials expect three rate rises in 2019 and one more in 2020, which would lift the bank’s important federal funds rate to about 3.4% that year.

Higher interest rates make borrowing more expensive, slowing economic activity and curbing price inflation.

But analysts worry that raising rates too quickly could tip the economy into recession.

They say the Fed’s position is particularly perilous, given other risks to the economy, including shifting trade policy.

Robert Sierra, director at Fitch Ratings said: “The Fed continues to be very much focused on strong domestic conditions and neither trade concerns nor recent emerging market turbulence affected today’s decision.”