Federal Reserve raises interest rates

A drink vendor moves past an electronic stock board of a securities firm in Tokyo. – AP

A drink vendor moves past an electronic stock board of a securities firm in Tokyo. – AP

"The overall outlook for growth remains favourable".

The rate increase was in line with investors' expectations and showed policymakers' confidence in the economy's growth prospects, continued low unemployment and steady inflation.

It was the Fed's seventh rate increase since 2015, and it followed an increase in March this year. Fed officials had been split about whether to raise rates three times this year or four. The Fed expects inflation higher than 2% over the next two years, according to its latest projections. It's the second rate hike under Powell, a Republican appointed to lead the Fed by President TrumpDonald John TrumpWhat you need to know about Tuesday's elections Danny Tarkanian wins Nevada GOP congressional primary Laxalt, Sisolak to face off in Nevada governor's race MORE.

U.S. Treasury yields rose after the release of the statement while U.S. stocks were trading marginally lower. The dollar.DXY pared losses against a basket of currencies.

Powell appeared at ease Wednesday in fielding questions ranging from the intricacies of monetary policy to banking regulation and even to whether marijuana should be legalized. The Fed chief now holds four such events each year.

The new median forecast projects the benchmark rate at 3.1 per cent by the end of 2019, up from 2.9 per cent in the previous forecast. With the economy now nine years into an expansion, the move reflects the steadiness of growth, the job market's strength and inflation that's finally nearing the Fed's target level.

The US Federal Reserve has voted to raise the target for its benchmark interest rate by 0.25%.

The unemployment rate, now at an 18-year low of 3.8 percent, is expected to fall to 3.6 percent this year, compared to the 3.8 percent that the Fed projected in March. The Fed had previously said its key rate "is likely to remain, for some time, below levels that are expected to prevail in the longer run". "The trajectory of USA inflation or the broader US economy would likely need to change materially for the FOMC to deviate from that path", said Aaron Anderson, senior vice president of research at Fisher Investments.

Consumers can expect interest rates to rise for all types of debt. The top interest rate now on offer for a savings account is just 2.05 percent, according to Bankrate, with the average rate only 0.06 percent.

"Job gains have been strong, on average, in recent months, and the unemployment rate has declined", the Fed said. Interest rates on new fixed-rate mortgages could also climb. The step was needed, the Fed said, to be sure rates stay within the intended boundaries.

The policy statement bypassed discussion about the tensions over the Trump administration's trade policies, including a decision two weeks ago to impose tariffs on steel and aluminium imports from the European Union, Canada and Mexico.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said before the Fed made its announcement that policymakers are "scared of future inflation risk".