Federal Reserve raises U.S. interest rates again

Federal Reserve Chairman Jerome Powell speaks following the Federal Open Market Committee meeting in Washington. Investors are eagerly awaiting the updated economic forecasts

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The Fed is widely expected to raise interest rates for the second time this year after a move in March, but the bigger question for investors is the outlook for future monetary tightening amid an ongoing economic expansion.

Fed officials also said they expect to raise rates twice more this year, faster than previously forecast.

At the end of March, the average interest rate charge on cards, according to the Fed, was 15.32%, an 18-year high. US payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years. The Fed anticipates that inflation will be 2.1% in 2019 and 2020, which is a little over its target rate of 2% through 2020, but is viewed as manageable.

"The fact that markets quickly reversed their course suggests the Fed's decision was broadly in line with expectations", he said.

The decision to raise rates comes as the U.S. unemployment rate hovers at 3.8% - the lowest rate in almost two decades - and inflation, which lagged the Fed's 2% target for years, shows signs of starting to pick up.

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But MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.5 percent, erasing the slim gains made following Tuesday's meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un.

The Fed offered an improved forecast for unemployment this year, lowering its forecast to 3.6%.

Powell is scheduled to speak to reporters Wednesday afternoon.

"The Fed's path of gradual rate hikes and slow (balance) sheet reduction seems well established at this point".

A gradual rise in inflation is coinciding with newfound economic strength. Even amid concerns about United States trade policy, the Fed raised its forecast for gross-domestic-product growth this year to 2.8% from 2.7%. That reflects the fact that the USA recovery after the crisis has been stronger, and inflation is getting closer to the Fed's target. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late previous year.

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Beginning in 2008 in the midst of the financial crisis, the Fed had kept its key rate unchanged at a record low near zero for seven years. Prices did not spike in response to the enormous monetary stimulus, nor has the job market cooled since 2015 when the Fed began tightening policy.

At nine years, the economic expansion is now the second-longest in history. Finally, the median Fed funds rate for the end of 2020 was heldat 3.4%. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001.

Some emerging market currencies stayed under pressure on worries higher USA rates could prompt fund outflows from emerging markets to the United States.

Keeping investors in check were concerns about US threats to impose tariffs on billions of dollars in Chinese goods.

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