The U.S.’s central bank lifted interest rates for the second time this year on Wednesday and signaled that more increases are on their way before 2018 is over as the world’s biggest economy continues to recover.
In a move widely expected by the markets, the Federal Reserve pushed up the target range for the federal funds rate to 2 percent from 1.75 percent following its monthly two-day meeting.
The move marks the seventh rate hike since the end of 2015. Rates are now at their highest level since the global financial crisis began as policymakers wean the U.S. economy off easy monetary policies.
The central bank also indicated that it wasn’t done with hikes this year and that two more could be on their way, followed by another three in 2019, with rates expected to hover around 3.4 percent in 2020.
Higher interest rates make it more expensive for both businesses and consumers to borrow money, but that is still a relatively remote concern given overall growth.
“The economy is doing very well,” Fed chairman Jerome Powell said at a news conference. “Most people who want to find jobs are finding them and unemployment and inflation are low.”
In particular, the economy has received a boost from corporate tax cuts implemented earlier this year, while consumers are opening their wallets at a faster pace.
As a result, the Fed has predicted that growth will hit 2.8 percent this year, up slightly from its previous 2.7 percent prediction, while unemployment is expected to fall to 3.6 percent.
Inflation, meanwhile, is set to run at a pace of 2.1 percent for the next three years, a touch over the Fed’s official 2 percent target, although this doesn’t seem to be bothering policymakers for now.
But risks remain with Powell stating that policymakers are starting to hear concerns over the U.S.’s more aggressive stance on its trade policies.
“Concerns about changes in trade policy are rising,” he told reporters. “You’re beginning to hear reports of companies holding off on making investments and hiring people.
“Right now, we don’t see that in the numbers at all,” he said. “The economy is very strong, the labor market is very strong, growth is strong. We really don’t see it in the numbers. It’s just not there so I would put it down as more of a risk.”
The S&P 500 slipped 0.2 percent to 2,780 after the news, while the Dow Jones Industrial Average was 0.3 percent lower at 25,255. The dollar rose 0.4 percent against the euro to $1.174.