WASHINGTON (AP) The Federal Reserve signaled its confidence Wednesday in the U.S. economy by raising a key interest rate for a third time this year, forecasting another rate hike before years end and predicting that it will continue to tighten credit into 2020 to manage growth and inflation.
The Fed lifted its short-term rate a benchmark for many consumer and business loans by a modest quarter-point to a range of 2 percent to 2.25 percent. It was its eighth hike since late 2015. The central bank also stuck with a previous forecast for three more rate hikes in 2019.
In a statement after its latest policy meeting, the Fed dropped phrasing it had long used that characterized its policy as accommodative that is, favoring low rates. The Fed had used variations of that pledge in the seven years that it kept its key rate at a record low near zero and over the past nearly three years in which its gradually tightened credit.
By removing that language, the Fed may be signaling its resolve to keep raising rates. In a news conference after its meeting, though, Chairman Jerome Powell said the removal of the accommodative language did not amount to a policy change.
Our economy is strong, Powell declared at the start of his news conference. Growth is running at a healthy clip, unemployment is low. The number of people working is rising steadily, and wages are up. Inflation is low and stable, all of these are very good signs.
The chairman added, though: Thats not to say everything is perfect. The benefits of this strong economy have not reached all Americans. Many of our countrys economic challenges are beyond the scope of the Fed.
The Feds actions and its updated economic forecasts Wednesday had been widely anticipated. Initially, there was little reaction in the stock or bond markets. But later in the afternoon, stocks sold off, and major indexes closed modestly lower.
The Fed stuck to script today, pushing ahead with another rate hike, said Michael Pearce, senior U.S. economist at Capital Economics.
But Pearce added, Our view is that officials are still underestimating just how quickly the economy is likely to lose momentum next year.
He said he expects the Fed to suspend its rate hikes by mid-2019 and then feel compelled to cut rates by early 2020 to support the economy.
In its updated outlook Wednesday, the Fed foresees one final rate hike after 2019 in 2020 which would leave its benchmark at 3.4 percent. At that point, it would regard its policy as modestly restraining growth. The Fed seeks to slow the economy when it reaches full employment to prevent a tight job market from raising inflation too high.
During a late-afternoon news conference in New York, President Donald Trump said he was not happy about the Feds latest rate hike. In a highly unusual move for a president, Trump has publicly complained that the Feds rate increases could blunt his efforts to boost growth through tax cuts and deregulation.
Earlier, Powell said during his news conference that such outside criticism would have no effect on the Feds use of rates to try to maximize employment and stabilize prices.
Weve been given a really important job to do on behalf of the American people, Powell said. My colleagues and I are focused, exclusively, on carrying out that mission.
The Feds latest forecast predicts that the unemployment rate, now 3.9 percent, will reach 3.7 percent by the end of this year and then 3.5 percent next year. Not since the late 1960s has unemployment fallen that low.
