U.S. Federal Open Market Committee June 13: Statement Text

The US Federal Reserve has raised its benchmark lending rate, the second increase of the year.

Announcing the decision to increase its target for the fed-funds rate to a range of 1.75% to 2%, the Fed described the United States jobs market as "strong" and said economic activity had been rising at "a solid rate".

Fed drops reference from previous statements that it expected rates to be below neutral rate for "some time".

Besides raising its projection for rate increases this year from three to four, the Fed removed a key sentence from the previous statement that had been viewed as foreseeing a need to keep rates low for an extended period.

The Fed announced the rate rise at the close of a two-day meeting in Washington. And since the Fed started its post-recession rate increases in late-2015, they've coincided with hikes so that the chair has an opportunity to explain the decision.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run.

The Federal Open Market Committee indicated that even though it's stepping up the pace of interest-rate hikes, economic growth should continue apace.

However quarterly economic forecasts show central bankers now expect the rate to end the year at 2.4%, rather than the 2.1% projected in March. Unemployment is already at 3.8 percent, the lowest since 2000, and the Fed believes it will fall to 3.6 percent by the end of the year, which would be the best rate since the 1960s.

While many economists think the current expansion will exceed the 1990's streak, some worry about what might occur once the impact of the tax cuts begin to fade and the Fed's gradual rate hikes begin to curb growth.

Powell faces a tricky balancing act as the Fed attempts to bring interest rates toward historical averages. Officials have also set in motion a plan to reduce the Fed's bond holdings, as the central bank moves away from accommodative policies employed during and after the 2008 financial crisis.

(Copyright © 2015. All Rights Reserved.)
 
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