‘Plain English’ Powell Praises U.S. Economy After Rate Hike

‘Plain English’ Powell Praises U.S. Economy After Rate Hike

‘Plain English’ Powell Praises U.S. Economy After Rate Hike

U.S. interest rates are set to rise further and faster than previously planned as surging economic growth forces officials to do more to try to see off the threat of inflation.

"This does not signal anything about the future pace of interest rates hikes", the chairman cautioned.

The 3.8-percent jobless rate is close to the lowest level ever seen in the U.S. There are more job openings than workers seeking employment in the country for the first time in recorded history, and recent inflation data shows prices inching through the Fed's ideal threshold.

"The main takeaway is that the economy is doing well", he said.

It was the Fed's seventh rate increase since 2015, and it followed an increase in March this year.

Consumers can expect interest rates to rise for all types of debt.

The central bank raised its key short-term rate by a modest quarter-point to a still-low range of 1.75 per cent to 2 per cent.

The median average of the central bank's updated forecasts - also referred to as the "dot plots" - called for interest rates to end the year around at 2.4%, up from March's projection of 2.1%; The forecasts suggest the Fed will raise interest rates two more times this year.

"For the first time in many years, the Fed has nearly complete confidence about the outlook", said Michael Gapen, chief US economist at Barclays Capital Inc.in NY.


The Fed's preferred measure of inflation, which strips out food and energy prices, climbed in May to 2.2% and registered the biggest annual jump in six years.

Fed policymakers projected gross domestic product would grow 2.8 per cent this year, slightly higher than previously forecast, and dip to 2.4 per cent next year, while inflation is seen hitting 2.1 per cent this year and remaining there through 2020.

That is a welcome step-up from the roughly 2-percent growth averaged throughout the recovery, which was plagued by a series of crises overseas and uncertainties at home, delaying the Fed's tightening plans.

Yields have been climbing this year, as markets position for a relatively more aggressive Fed amid inflation concerns.

"Economic activity has been rising at a solid rate", the FOMC said in its statement. Fed officials repeated their assessment that "risks to the economic outlook appear roughly balanced".

Economists said the Fed left little doubt that it's prepared to increase the pace of its credit tightening to guard against high inflation later on.

"In view of realised and expected labour market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-3/4 to 2 per cent".

The Fed said its policy of further gradual rate increases will be "consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 per cent objective". More increases are expected this year but the Fed noted "readings on financial and global developments" would factor into its decisions on future increases.

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