Fed Raises Key Rate, Expects 2 More Rate Hikes This Year

By MARTIN CRUTSINGER

The Associated Press

WASHINGTON - The Federal Reserve is raising its key interest rate and signaling confidence in the U.S. economy's durability but plans to continue a gradual approach to rate hikes for 2018 under its new chairman, Jerome Powell.

The Fed said it expects to raise rates twice more this year. At the same time, it increased its estimate for rate hikes in 2019 from two to three, reflecting more optimistic expectations for growth and low unemployment.

In a statement ending its latest policy meeting, the Fed boosted its key short-term rate Wednesday by a modest quarter-point to a still-low range of 1.5 percent to 1.75 percent. It also said it will keep shrinking its bond portfolio. The two moves mean that many consumers and businesses will face higher loan rates over time.

Taken together, the Fed's actions and forecasts Wednesday suggest a belief that the economy remains sturdy even nearly nine years after the Great Recession ended.

The Fed's latest rate hike marks its sixth since it began tightening credit in December 2015, after having kept its benchmark rate at a record low near zero for seven years to help nurture the economy's recovery from the recession. Wednesday's action was approved 8-0, with the Fed avoiding any dissents at the first meeting Powell has presided over as chairman since succeeding Janet Yellen last month.

If the Fed does stick with its new forecast for three rate increases this year and three in 2019, its key policy rate would stand at 3.4 percent after five years of credit tightening. Wednesday's forecast put the Fed long-term rate - the point at which its policies are neither boosting the economy nor holding it back - at 2.9 percent.

At a news conference after the meeting, Powell said the Fed hasn't lowered its forecasts for growth because of the Trump administration's decision to impose tariffs on steel and aluminum imports. But he said the Fed's regional bank presidents around the country have heard concerns from businesses about the consequences of the tariffs.

"Trade policy has become a concern going forward for that group," the chairman said, referring to business leaders.

But among the Fed officials who met in Washington this week, Powell said, "there's no thought that changes in trade policy should have any effect on the current outlook."