Federal Reserve raises interest rates, signals fewer hikes ahead

The US central bank, the Federal Reserve, raised its benchmark interest rate a quarter of percentage point on Wednesday and forecast fewer rate hikes for next year.

In its post-meeting statement, the fed pointed to a tight jobs market and economic activity that’s been “rising at a strong rate” as the reasons for the rate increase.

Fed officials are also now forecasting two rate hikes for 2019, instead of three.

Wednesday’s move bumps the benchmark federal funds rate to a range of 2.25 percent to 2.50 percent. It is the fourth rate hike this year and the ninth since late 2015.

This week’s meeting was arguably the most highly anticipated Fed gathering of the year, given the backdrop of market turmoil spawned by trade wars, plunging oil prices and worries over slowing global economic growth.

The US central bank has also been in the crosshairs of President Donald Trump who has accused the Fed of undermining his efforts to grow the economy.

The Federal Reserve has a dual mandate to maximise employment and maintain price stability in the United States.

The short-term federal funds rate influences both US and global financial markets which had widely priced in Wednesday’s hike. An increase in the benchmark rate raises the cost of borrowing in the United States, which tames inflation and cools the economy. It also reverberates around the globe by raising the value of the dollar against emerging market currencies, many of which have been under pressure this year.

Late last month, Federal Reserve Chairman Jerome Powell said he considered the benchmark interest rate to be near the so-called “neutral level”, which neither accelerates nor puts the brakes on economic growth.