US Federal Reserve raises benchmark interest rate, sees possible acceleration in hikes

The US Federal Reserve has raised its benchmark interest rate for the second time this year and signalled that it may step up its pace of rate increases because of solid economic growth and rising inflation. The Fed now foresees four rate hikes this year, up from the three it had previously forecast.

The central bank on Wednesday 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 move reflects the economy’s resilience, the job market’s strength and inflation that is finally nearing the Fed’s target level.

The action means consumers and businesses will face higher loan rates over time. It was the Fed’s seventh rate increase since it began tightening credit in 2015, and it followed an increase in March this year.

When the Fed last met in May, it left its short-term rate unchanged. But it noted that inflation was edging near its 2 per cent target after years of remaining undesirably low. Should inflation eventually pick up, the Fed might move to tighten credit more aggressively.

A gradual rise in inflation is coinciding with new-found economic strength. After years in which the economy expanded at roughly a tepid 2 per cent annually, growth could top 3 per cent this year. Consumer and business spending is powering the economy, in part a result of the tax cut US President Donald Trump pushed through Congress late last year.