US Fed raises interest rates by 25 bps

Signals another hike in December and three more in 2019

Federal Reserve Powell Federal Reserve Chairman Jerome Powell | AP

The US Federal Reserve on Wednesday raised interest rates by 25 basis points and signalled another rate hike in December. In an attempt to steadily tighten monetary policy, the Federal Reserve hinted at three more rate hikes next year and one on 2020. However, it forecast that the US economy would have at least three more years of growth. 

In a statement that marked the end of the era of “accommodative” monetary policy, Fed policymakers lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of two per cent to 2.25 per cent. "In view of realised and expected labour market conditions and inflation, the committee decided to raise the target range for the federal funds rate to 2 to 2.25 per cent,” Fed policy statement said. 

More rate hikes would mean that the benchmark overnight lending rates would touch 3.4 per cent by 2020, roughly half a percentage point above the Fed’s estimated “neutral” rate of interest, at which rates neither stimulate nor restrict the economy. 

Meanwhile, US President Donald Trump slammed the rate hike. Fed chair Jerome Powell, on the other hand, said the central bank was simply focusing on its mandate. “We’re doing great as a country. Unfortunately they just raised interest rates because we are doing so well. I’m not happy about that,” Trump told a press conference. 

The rate hike indicates US Federal Reserve's tight policy stance that is projected to stay level through 2021, the timeframe of the Fed’s latest economic projections.