The Federal Reserve has raised its key interest rate for the third time in six months, providing its latest vote of confidence in a slow-growing but durable economy. The Fed also announced plans to start gradually paring its bond holdings later this year, which could cause long-term rates to rise.
The increase in the short-term rate by a quarter-point to a still-low range of 1 percent to 1.25 percent could lead to higher borrowing costs for consumers and businesses and slightly better returns for savers. The Fed foresees one additional rate hike this year, unchanged from its previous forecast. It gave no hint of when that might occur.
The Fed chose to raise rates again despite economic weakness at the start of 2017 and a further slowdown recently in inflation, which remains persistently below the Fed’s 2 percent target rate. Fed officials reiterated their belief that that both inflation and economic growth will pick up.
The Fed’s decision was approved on an 8-1 vote with Neel Kashkari, head of the Fed’s Minneapolis regional bank, dissenting in favor of holding rates unchanged.
The latest rate increase, announced in a statement after a Fed policy meeting, comes as the U.S. economy is growing only sluggishly. Even so, many of the barometers the Fed monitors most closely have given it the confidence to keep gradually lifting still-low borrowing rates toward their historic norms.
In particular, hiring in the United States remains solid if slowing, with employment at a 16-year-low of 4.3 percent — even below the level that the Fed associates with full employment.
The Fed’s announcement that it would begin paring its…
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