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Fed raises rate and sees more hikes as US economy improves

The Associated Press

Federal Reserve Chair Janet Yellen speaks during a news conference in Washington, Wednesday, March 15, 2017.

The Associated Press WASHINGTON (AP) — The Federal Reserve has raised its benchmark interest rate for the second time in three months and forecast two additional hikes this year. The move reflects a consistently solid U.S. economy and will likely mean higher rates on some consumer and business loans.

The Fed’s key short-term rate is rising by a quarter-point to a still-low range of 0.75 percent to 1 percent. The central bank said in a statement that a strengthening job market and rising prices had moved it closer to its targets for employment and inflation.

The message the Fed sent Wednesday is that nearly eight years after the Great Recession ended, the economy no longer needs the support of ultra-low borrowing rates and is healthy enough to withstand steadily tighter credit.

The decision, issued after the Fed’s latest policy meeting, was approved 9-1. Neel Kashkari, president of the Fed’s regional bank in Minneapolis, was the dissenting vote. The statement said Kashkari preferred to leave rates unchanged.

The Fed’s forecast for future hikes, drawn from the views of 17 officials, still projects that it will raise rates three times this year, unchanged from the previous forecast in December. But the number of Fed officials who think three rate hikes will be appropriate for 2017 rose from six to nine.

The central bank’s outlook for the economy changed little, with officials expecting growth of 2.1 percent this year and next year before slipping to 1.9 percent in 2019. Those forecasts are far below the 4 percent growth that President Donald Trump has said he can produce with his economic program.

The Fed’s rate hike should have little effect on mortgages or auto and student loans. The central bank doesn’t directly affect those rates, at least not in the short run. But rates on some other loans — notably credit cards, home equity loans and adjustable-rate mortgages — will likely rise soon, though only modestly. Those rates are based on benchmarks like banks’ prime rate, which moves in tandem with the Fed’s key rate.

After the Fed’s announcement, major banks began announcing that they were raising their prime lending rate from 3.75 percent to 4 percent.

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