U.S. Fed raises rates for third time this year despite trade concerns

Publish Time: 2018-09-27 Author: From: Xinhua

WASHINGTON, Sept. 26 (Xinhua) -- The U.S. Federal Reserve on Wednesday raised short-term interest rates for the third time this year despite concerns over the rising trade tensions between the United States and its trading partners.

"In view of realized and expected labor market conditions and inflation, the (Federal Open Market) Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent," the central bank said in a statement after concluding a two-day meeting.

The Fed said the U.S. labor market has "continued to strengthen" and economic activity has been "rising at a strong rate", with household spending and business fixed investment growing "strongly".

The central bank expected the U.S. economy to grow at 3.1 percent this year, higher than 2.8 percent estimated in June, according to the Fed's latest economic projections released on Wednesday.

Solid economic growth and falling unemployment rate are likely to keep the Fed on a steady path toward tightening monetary policy to prevent the U.S. economy from overheating, analysts said.

The central bank on Wednesday also dropped the phrase that "the stance of monetary policy remains accommodative" from the statement. But Fed Chairman Jerome Powell played down the significance of this change.

"This does not signal any change in the likely path of policy. Instead, it is a sign that policy is proceeding in line with our expectations," Powell said Wednesday at a press conference.

"We still expect, as our statement says, further gradual increases in the target range for the fed funds rate," he said.

Fed officials envisioned one more rate hike this year, according to the median forecast for the federal funds rate. Most market participants estimated that the central bank would raise rates again at its December policy meeting.

While striking an upbeat tone about overall U.S. economic growth, Powell also acknowledged the trade concerns among American businesses.

"We've been hearing a rising chorus of concerns from businesses all over the country about disruption of supply chains, materials cost increases," he said, adding Fed officials worried about the loss of business confidence and the possibility of a financial market reaction to unexpected trade developments.

Under the "America First" protectionist policies, the Trump administration has imposed high tariffs on a variety of imported products worth of hundreds of billions of U.S. dollars, provoking strong opposition from the domestic business community and retaliatory measures from U.S. trading partners.

"I think if this, perhaps inadvertently, goes to a place where we have widespread tariffs that remain in place for a long time, a more protectionist world, that's going to be bad for the United States' economy, and for American workers and families, and also for other economies," Powell said.

Wednesday's announcement marked the Fed's eighth rate hike of this tightening cycle beginning December 2015 and the third move under Powell, who took the helm of the central bank in February.

The rate hike also came after U.S. President Donald Trump recently complained that he was "not thrilled" by the Fed's tightening policy.

While nominated by Trump to head the central bank, Powell promised that the Fed would remain politically independent.

"We consider the best thinking, the best theory, and the best evidence... we don't consider political factors or things like that," he said.

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