U.S. Fed Raises Its Benchmark Interest Rate As Job Growth And Inflation Gather Steam

Citing robust job growth and inflation that is running above its 2% target, the U.S. Federal Reserve raised its benchmark interest rate on Wednesday – a move that had been widely expected.

In raising its key overnight lending rate by a quarter of one percentage point to a range of between 1.75% and 2%, the Fed dropped its pledge to keep rates low enough to stimulate the economy “for some time.” The Fed has now raised interest rates seven times since late 2015 as the U.S. economy continues to expand and post solid job growth.

Inflation is also growing in the U.S., with new projections from policymakers on Wednesday indicating that it would run above the central bank's two per cent target and reach 2.1% by the end of this year and remain around that level through 2020.

"The labour market has continued to strengthen ... economic activity has been rising at a solid rate... Household spending has picked up while business fixed investment has continued to grow strongly," the Fed said in a written report.

The Fed also said that it now sees Gross Domestic Product (GDP) in the U.S. growing 2.8% this year, slightly higher than previously forecast, and dipping to 2.4% next year, unchanged from March projections. The unemployment rate is seen falling to 3.6% in 2018, compared to a 3.8% forecast in March.

Policymakers also projected a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.