Federal Reserve raises key interest rate, indicates two more hikes this year

WASHINGTON, D.C. — Amid solid job growth and rising inflation, Federal Reserve officials on Wednesday nudged up a key interest rate for the second time in three months and signaled two more hikes are coming this year.

After a two-day meeting, members of the policymaking Federal Open Market Committee voted 9-1 to raise the rate 0.25 percentage points to a target between 0.75 percent and 1 percent. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, voted against the hike because he preferred to keep the rate steady.

The rate hike was widely expected after Fed Chair Janet Yellen and other policymakers strongly hinted last week that the economy was ready for it.

Some analysts speculated that Fed officials also could indicate a faster pace of rate hikes this year and next.

Such a move could put them at odds with Trump administration officials who are pushing tax cuts, regulatory reductions and increased infrastructure spending in an attempt to accelerate economic growth. Higher interest rates could slow that growth.

But the estimates from committee members Wednesday remained at two more quarter-percentage-point rate increases this year and three next year — the same as they indicated the last time they made projections in December.

Those hikes would bring the benchmark rate to 2.1 percent by the end of 2018 — still historically low but a level not reached since early 2008 after a long period near zero.

In a policy statement, committee members said the economy was expanding at a moderate pace while the labor market has “continued to strengthen” with solid job gains in recent months.

Inflation has been moving up toward the Fed’s annual 2 percent target.

Fed officials stressed that even with Wednesday’s increase, interest rates remain low enough to support “some further strengthening in labor market conditions and a sustained return to 2 percent inflation.”

Committee members said they expected economic conditions to warrant gradual increases in the benchmark federal fund rate, which had been held at a range of 0 to 0.25 percent from 2008 to 2015 in an unprecedented effort to stimulate growth during and after the Great Recession.

The Fed has a dual mandate to promote maximum employment and stable prices, and the economy is near both goals.

The unemployment rate was 4.7 percent in February after another strong month of labor market growth in which the economy added 235,000 net new jobs. That is in line with the Fed’s long-term projection of 4.7 percent.

Inflation was 1.9 percent for the 12 months ended Jan. 31, its highest annual level since 2012, according to the Fed’s preferred measure based on total personal consumption expenditures.

Another inflation gauge, the consumer price index, increased 2.7 percent for the 12 months ended Feb. 28, the government reported Wednesday.

New economic projections released by the Fed were essentially the same as the last estimates in December.

Policymakers expect 2.1 percent growth in 2017 with the unemployment rate dropping to 4.5 percent by the end of the year. Growth will be the same in 2018, a slight improvement from the December estimate, but would tick down to 1.9 percent in 2019.Those projections are well below President Trump’s goal of at least 3 percent annual economic growth.