Published: Fri, June 15, 2018
Business | By Tara Barton

US Fed raises interest rates for second time this year

US Fed raises interest rates for second time this year

"It will increase with the Fed hike, and since most HELOCs are tied to this rate, borrowers will see immediate increases in their interest rates".

The latest increase, the second this year, will bring the benchmark federal-funds rate to a range between 1.75% and 2%.

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.

With the unemployment rate at 3.8 percent - a level reached only twice before in the past half-century - Fed Chairman Jerome Powell and his colleagues have decided additional rate hikes will very likely be necessary later this year.

"Most people who want to find jobs are finding them".

The Federal Reserve said Wednesday that "in view of realized and expected labor market conditions and inflation, the [Federal Open Market] Committee chose to raise the target range for the federal funds rate to 1-3/4 [1.75] to 2 percent".

Eight of 15 officials now expect at least four rate increases will be needed this year, up from seven in March and four in December.

The Fed's new forecast showed inflation inching up only slightly over the next 2 1/2 years.

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ANZ Bank senior strategist Phil Borkin said U.S. interest rates could be well ahead of New Zealand by the time the Reserve Bank got around to raising rates here, probably in the second half of next year.

China's central bank kept interest rates steady instead of following USA monetary tightening moves on Thursday, shifting greater focus onto maintaining domestic economic stability and facing downside risk.

"I think we are far enough away now though that the risks are kind of balanced", he said.

Powell said it's been a "bit of puzzle" why wages haven't risen faster, but he expressed optimism that American workers will see fatter paychecks as more go back to work.

Officials also project slightly stronger price pressures this year than they did in March. While Japan's central bank isn't expected to make any major policy shifts, anticipation is rising that the ECB may outline as early as this week plans to begin paring its bond-buying stimulus program as a prelude to ending them altogether. It gained 1.1 percent to $76.74 per barrel on Wednesday. But because many officials expect they will need to raise rates above neutral to a level that would slow growth, they face hard debates ahead over how much higher to continue to raise rates, and at what pace. The Fed's short-term policy rate, a benchmark for a host of other borrowing costs, is now roughly equal to the rate of inflation, a breakthrough of sorts in the central bank's battle in recent years to return monetary policy to a normal footing.

ANALYST'S TAKE: Expectations for further Fed tightening and U.S.

"The Fed deserves tremendous credit for steering the economy to calmer waters, supporting what is likely to be the longest expansion in USA history while meeting inflation and employment objectives", said Stephen Gallagher, chief US economist at Societe Generale. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher. It is shorter and more direct.

The postmeeting statement released Wednesday reflects some of those changes.

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