Federal Reserve bumps up interest rate, signals more to come

The rising interest rates are likely to lead to increased mortgage, credit card and auto business loan rates. Photo/123RF.

The Federal Reserve hiked America's benchmark interest rate a quarter point on Wednesday to 1.75 to 2 per cent, a move that will likely cause a slight increase in mortgage, credit card, auto and small business loan rates.

This hike, which was widely expected, is the Fed's second of 2018, and the central bank signalled it is likely to do two more increases by the end of this year.

The US economy continues to strengthen, the Fed indicated, and it no longer needs the historically low-interest rates that were put in place in the aftermath of the financial crisis to stimulate growth. Unemployment is already at 3.8 per cent, the lowest since 2000, and the Fed believes it will fall to 3.6 per cent by the end of the year, which would be the best rate since the 1960s.

The US central bank also lifted its growth forecast to 2.8 per cent this year, up a small amount from its projection of 2.7 annual growth in March. US companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 per cent this year.

"Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly," the Fed wrote in its statement Wednesday announcing the interest rate hike. "Economic activity has been rising at a solid rate."

This marks the highest level of interest rates in the United States since 2008, although the benchmark rate remains below the historical average.

The biggest change the Fed made Wednesday was to signal that it intends to do two more rate hikes this year, instead of just one. That puts the Fed on track for four rate hikes total in 2018, something the Fed hasn't done since 2006.

While many economists worry about a trade war harming growth, the Fed did not mention trade concerns in its statement. The central bank is an independent agency, and it has long been hesitant to weigh in on anything political.

- Washington Post