In the U.S., Fed officials are setting policy for an economy that's being boosted by $1.5 trillion in tax cuts and a $300 billion increase in federal spending, while unemployment has fallen to levels that match the lowest since 1969. In a few hours, several banks will respond by raising their prime lending rate, the starting point of borrowing costs for nonmortgage loans like credit cards and auto loans.
The Federal Reserve is guiding a US economy that is as close to ideal as it could have dreamed a decade ago, when the darkest days of the recession forced it to take big risks to protect workers, banks and economies around the world from further devastation. And since the Fed started its post-recession rate increases in late-2015, they've coincided with hikes so that the chair has an opportunity to explain the decision.
The unemployment rate, now at an 18-year low of 3.8 per cent, is expected to fall to 3.6 per cent this year, compared to the 3.8 per cent that the Fed projected in March.
The Fed announcement helped resolved a debate in financial markets over whether the Fed under Jerome Powell, who succeeded Janet Yellen as chairman in February, might see a need to signal a possible acceleration in rate hikes.More news: Oil prices turn positive as US crude inventories fall
Fed Chairman Jerome Powell said at a news conference that the USA economy has strengthened considerably since the 2007-08 recession and is in "great shape".
Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 per cent in 2020 before dropping to 2.9 per cent in the longer run.
"Job gains have been strong, on average, in recent months, and the unemployment rate has declined", the Fed said.
Inflation, which has been mysteriously low during the long economic recovery, has finally passed 2%, the level the Fed considers healthy.More news: White House aide apologizes for 'special place in hell' comment
Greg McBride, chief financial analyst for the interest rate website Bankrate.com, said that could "squeeze" families if wage growth remains sluggish.
Investors were expecting the increase.
But for now, the Atlanta Fed estimates the US economy is roaring at a 4.6 percent rate, a level it reached only twice since the recession. Fed officials repeated their assessment that "risks to the economic outlook appear roughly balanced". The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 per cent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth.
Interest rates are expected to increase to 3.1% next year, up from the previous forecast of 2.9%. The Associated Press reported that while there have been increases, commodities prices other than those for food and energy decreased by 0.3 percent in the past year.
"Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams".More news: Spain 'forced' to sack Julen Lopetegui on eve of World Cup 2018