The Federal Reserve has raised short-term interest rates for the second time in a decade and forecast a faster pace of tightening in the coming year, as it responds to a US economy that has been gathering momentum and may receive further stimulus from Republican tax cuts.
With the US on the cusp of full employment and inflation gradually approaching the Fed’s target, the central bank raised the target range for its federal funds rate by a quarter-point to 0.5-0.75 per cent, as was widely expected in the financial markets. Following a long procession of downgrades to its interest-rate forecasts in recent quarters, the central bank’s policymakers penciled in a median projection of three quarter-point increases for 2017, up from two previously.
The decision to lift rates on Wednesday, which was unanimous, came in the Fed’s final meeting before president-elect Donald Trump is due to take office, and as Republicans contemplate tax-cutting plans that could add further fuel to the recovery.