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Federal Reserve Raises Interest Rate Target for Third Time Since 2006

Federal Reserve Raises Interest Rate Target for Third Time Since 2006

The US dollar fell after the statement.

The Fed lifted rates one quarter of a percentage point - the second hike in three months - but it was less hawkish than expected on the pace of future rate hikes.

March 15 US stock index futures were slightly higher on Wednesday as investors focused on a Federal Reserve meeting, where the central bank is widely expected to raise interest rates for the second time in three months.

In today's announcement, the Federal Open Market Committee indicated a strengthened labor market and continued moderate economic growth helped solidify its decision to raise the rate.

The Atlanta Fed on Wednesday cut its view for first-quarter GDP to a 0.9 gain - coincidentally, the same level of fourth-quarter growth when the FOMC approved the December 2015 rate hike.

"Waiting too long to scale back some accommodation", she said, "could potentially require us to raise rates rapidly sometime down the road, which in turn could risk disrupting financial markets and pushing the economy into recession".

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The market now expects the Fed to hike the rate two more times this year, in line with the bank's projections from December 2016.

This latest increase did not come as a surprise to many after the nation's economy had a "robust" year in 2016, and the CEO of the Arizona Bankers Association said he is expecting even more increases in the Fed's key rate before this year is out. "We expect core inflation to move up and overall inflation to stay around 2 percent over the next couple of years, in line with our longer-run objective", said Janet Yellen, chair of the Board of Governors of the Federal Reserve System, in a press conference.

He expected an increase of 1.5 per cent to 2 per cent in fixed mortgage rates over the course of the next two years.

"The simple message is - the economy is doing well".

The higher benchmark interest rate will push up costs for mortgages and credit cards. So it makes sense for the Federal Reserve to raise rates, he said.

The ultra-low rates were meant to stimulate the economy by encouraging borrowing and investment. By the end of 2019, the rate is projected to be at its long-run level of 3%. They point to inflation running at 2.7% and an unemployment rate of 4.7% as evidence that price pressures have already started to build. Meanwhile, the average rate on a 1-year CD is 0.33%, only slightly up from 0.28% a year ago. Yet the United States expansion is now nearly eight years old, the labor market is tight, and the unemployment rate is near a nine-year low of 4.7 percent.

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