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Fed raises rates in defiance of Trump | |
(about 3 hours later) | |
The Federal Reserve has raised interest rates again, defying warnings from Donald Trump against the move. | |
Officials at the US central bank voted to lift the Fed's key interest rate by 0.25%, to a target range of 2.25%-2.5%. | Officials at the US central bank voted to lift the Fed's key interest rate by 0.25%, to a target range of 2.25%-2.5%. |
But they also said future increases could come at a slower pace amid concerns about global growth. | |
It comes after the US president on Tuesday warned the Fed against making "yet another mistake" in raising rates, urging it instead to "feel the market". | |
He also urged the bank not to wind down a multi-billion dollar stimulus programme brought in after the financial crisis. | |
Mr Trump - who appointed the Fed's chairman, Jerome Powell - has repeatedly blamed the central bank for unsettled markets and dismissed analysts who cite other factors, such as rising trade tariffs. | |
But his remarks have put pressure on the Fed, as presidents generally avoid criticising the bank publicly, for fear of politicising the institution. | |
At a press conference on Wednesday, Mr Powell defended the Fed's independence, saying that political pressure played "no role whatsoever" in its discussions or decisions. | |
He added that the Fed had no plans to change its ongoing reduction of its portfolio of Treasuries and mortgage-backed securities. | |
Fewer hikes next year | |
The bank has been gradually raising the benchmark rate since 2015, moving the US away from the ultra-low rates put in place during the financial crisis to spur economic activity. | |
Wednesday's decision, which was widely expected, marked the ninth increase since 2015 and the fourth this year. | |
However, the moves have made borrowing more expensive, contributing to slowdowns in some sectors, such as housing. | |
And with economic growth expected to slow, some worry that further increases risk stifling economic activity. | |
On Wednesday, officials did cut their forecasts for economic growth in 2019 to 2.3%, down from the 2.5% they anticipated in September. | |
And estimates released by the bank showed most Fed members expect two rate increases in 2019 - not three, as previously forecast. | |
It follows a downturn in US financial markets and concerns about slowing growth in the US and abroad. | |
However, Mr Powell said the strength of the US economy - which is expected to grow about 3% this year - justified another rate rise, despite recent "cross currents" that have weakened the outlook. | |
"We think this move was appropriate for what is a very healthy economy," he said. "Policy at this point does not need to be accommodative." | "We think this move was appropriate for what is a very healthy economy," he said. "Policy at this point does not need to be accommodative." |
In its official statement, the Fed also said increases to its benchmark rate would help the US economy sustain its expansion, keeping the unemployment rate low and inflation near 2%. | |
Market reaction | Market reaction |
Shares sank after the announcement, reversing earlier gains. The Dow and S&P 500 closed about 1.5% lower, while the Nasdaq fell than 2%. | Shares sank after the announcement, reversing earlier gains. The Dow and S&P 500 closed about 1.5% lower, while the Nasdaq fell than 2%. |
Analysts said investors might have been hoping for stronger signs from the Fed that it would raise rates more slowly in the future. | |
"Given the stock market declines and negative international economic news - recognised in the statement - this still points to quite a bit of confidence at the Fed in the ability of the US economy to withstand a few more rate hikes," said Brian Coulton, chief economist at Fitch Ratings. | "Given the stock market declines and negative international economic news - recognised in the statement - this still points to quite a bit of confidence at the Fed in the ability of the US economy to withstand a few more rate hikes," said Brian Coulton, chief economist at Fitch Ratings. |