U.S. Federal Reserve Raises Interest Rates

A strengthening labor market and expectations of higher inflation have led to the U.S. Federal Reserve raising its benchmark rate by a modest quarter-point to a still-low range of 0.5 per cent to 0.75 per cent.

The Fed last raised the rate in December 2015 from a record low near zero set during the 2008 financial crisis.

Job gains have been solid in recent months and the unemployment rate has declined, according to the Fed. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased since earlier this year but is still below the Fed’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.

The Fed expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook based on incoming data.

The Fed foresees economic growth reaching 1.9 per cent this year, slightly above its forecast in September, and 2.1 per cent in 2017. The new prediction is slightly more optimistic than it projected in September.

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