Fed raises rates as job, inflation data stoke confidence

The US Federal Reserve raised interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising to the central bank’s target.

The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75 per cent to 1 per cent marked one of the Fed’s most convincing steps yet in the effort to return monetary policy to a more normal footing

However, the Fed’s policy-setting committee did not flag any plan to accelerate the pace of monetary tightening. Although inflation is “close” to the Fed’s 2 per cent target, it noted that goal was “symmetric,” indicating a possible willingness to allow prices to rise at a slightly faster pace.

Further rate increases would only be “gradual,” the Fed said in its policy statement, with officials sticking to their outlook for two more rate hikes this year and three more in 2018. The Fed lifted rates once in 2016

Business investment “appears to have firmed somewhat,” the Fed said in language that reflected a stronger sense of the economy’s momentum.

Fresh economic forecasts released with the statement showed little change from those of the December policy meeting and gave little indication the Fed has a clear view of how Trump administration policies may impact the economy in 2017 and beyond.

“With gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace,” the Fed said, maintaining language it has used in previous statements.

The Fed’s projections showed the economy growing by 2.1 per cent in 2017, unchanged from the December forecast. The median estimate of the long-run interest rate, where monetary policy would be judged as having a neutral effect on the economy, held steady at 3 per cent.

The unemployment rate Fed officials expect by the end of the year was unchanged at 4.5 per cent, while core inflation was seen as slightly higher at 1.9 per cent versus the previous 1.8 per cent forecast.

Fed Chair Janet Yellen is scheduled to hold a press conference at 2.30pm (1830 GMT) to discuss the policy statement.

The rate increase comes amid a broad improvement in the world economic outlook and a sense among Fed policymakers that the US economy is close to the central bank’s employment and inflation goals.

According to the policy statement, risks remained “roughly balanced,” the Fed said.

Minneapolis Fed President Neel Kashkari was the only Fed official to dissent in Wednesday’s decision, saying he preferred to leave rates unchanged

Kuwait, Bahrain raise rates

Kuwait City, Dubai: Kuwait on Wednesday raised its benchmark discount rate by 25 basis points to 2.75 percent after the US Federal Reserve hiked its rate, the central bank said.

Central bank governor Mohammad Al-Hashel said in a statement the increase was taken "to ensure the continued competitiveness," of the Kuwaiti dinar in light of interest rate movements on major currencies.

The hike will be effective from Thursday, the statement said.

The Kuwaiti decision was taken although the emirate is the only member of the six-nation Gulf Cooperation Council (GCC) not to peg its currency to the US dollar.

Instead, the dinar is linked to a basket of major currencies, the composition of which is kept confidential.

But it is believed that the greenback accounts for more than 70 percent of its weight.

Under central bank regulations, interest rates on consumer loans cannot exceed three percentage points above the discount rate.

Meanwhile, the central bank of Bahrain also said on Wednesday it had raised its key policy interest rate on the one-week deposit facility by 25 basis points to 1.25 percent.

It also increased three other rates by 25 bps: the overnight deposit rate to 1.00 percent, the one-month deposit rate to 1.75 percent, and the lending rate to 3.00 percent.

source : gulfnews