WASHINGTON — The Federal Reserve raised interest rates on Wednesday and forecast at least two more hikes for 2018, signaling its growing confidence that U.S. tax cuts and government spending will boost the economy and inflation and lead to more aggressive future tightening.
In its first policy meeting under new Fed chief Jerome Powell, the U.S. central bank indicated that inflation should finally move higher after years below its two percent target and that the economy had recently gained momentum.
The Fed also raised the estimated longer-term “neutral” rate — the level at which monetary policy neither boosts nor slows the economy — a touch, in a sign the current gradual rate hike cycle could go on longer than previously thought.
“The economic outlook has strengthened in recent months,” the Fed said in a statement at the end of a two-day meeting in which it lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.50 percent to 1.75 percent.
Inflation “is expected to move up in coming months and stabilize” around the Fed’s target, it said.
Powell took over from former Fed chief Janet Yellen in early February.
The move was the latest step away from years of stimulating the world’s largest economy in the wake of the 2007-2009 financial crisis and recession. The Fed tightened policy three times last year.
The combination of $1.8 trillion in expected fiscal stimulus and recent hints of price and wage pressures had prompted some Fed officials to speculate more Americans could be drawn into an already tight labor market and that inflation could rise to the target, or even well above if the economy got too hot.