Millennium Post

US Fed raises key interest rate by 25 bps, signals one more hike in 2017

The US Federal Reserve has raised its benchmark interest rate by a quarter point to 1.0- 1.25 per cent and signaled another increase remains likely this year, despite the recent spate of weak economic data.
In explaining this second rate hike of 2017 and plans for more increases in the coming months, Federal Reserve Chair Janet Yellen said on Wednesday the move reflected the progress in the world's largest economy, which continues to add jobs at a solid pace.

"The economy is doing well, is showing resilience," Yellen said in her quarterly press conference.

"We have a very strong labor market, an unemployment rate that's declined to levels we have not seen since 2001. And even with some moderation in the pace of job growth, we have a labor market that continues to strengthen."

And despite recent tepid price pressures, the Fed expects inflation to pick up -- eventually, citing "one-off reductions" in certain categories such as cell phone services and prescription drugs as the reason for the recent lower readings.

Those factors mean the Fed's preferred inflation measure will remain below the two percent target for some time, but will gradually rise to the target level over "the medium term."

But coming on a day when the consumer price index and retail sales fell, in large part due to falling food and gasoline prices, but with widespread declines in other categories, some economists are saying the Fed is no longer basing its decision on the data, as it has repeatedly said.

"The third rate hike in seven months, coming not long after a relatively poor Q1 GDP print, suggests the Fed has become less data-dependent in its monetary policy decisions," Fitch Ratings Chief Economist Brian Coulton said. One FOMC member, Minneapolis Federal Reserve Bank President Neel Kashkari, dissented from the decision, preferring to keep policy on hold for now.

Analysts in recent weeks have become increasingly doubtful there would be a third rate increase later this year, as inflation, consumption and other economic data have indicated the weakness seen in the first quarter has continued. pti
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