Federal Reserve raises interest rates

Federal Reserve raises interest rates

Jerome Powell arrives to takes the oath of office as he is sworn-in as the new Chairman of the Federal Reserve (FED) at the Federal Reserve Building in Washington, DC, February 5, 2018.Image copyright

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Federal Reserve Chair Jerome Powell is presiding over a sea change in US policy

The US Federal Reserve has voted to raise the target for its benchmark interest rate by 0.25%, citing solid economic expansion and job gains.

The widely-anticipated decision will lift the target for the central bank’s benchmark rate to 1.75%-2%, the highest level since 2008.

It is the seventh time the bank has raised rates since 2015.

A majority of Fed officials also said they expect two more rate rises this year, more than previously forecast.

The Fed announced the rate rise at the close of a two-day meeting in Washington.

The decision to raise rates comes as the US unemployment rate hovers at 3.8% – the lowest rate in nearly two decades – and inflation shows signs of starting to pick up.

The US consumer price index, one official measure of inflation, increased 2.8% over the year to May driven by rising petrol costs, the Bureau of Labor Statistics said this week. Excluding energy and food, the index is up 2.2%.

The Fed, which has set a 2% target for inflation, prefers to measure inflation using consumer spending figures.

By that indicator, inflation rose 2% in April or 1.8% if energy and goods are excluded.

Fed officials said further gradual increases in the rate will be consistent with “sustained economic activity” and inflation near its 2% target.

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