Fed raises US interest rates, sees at least another three years of growth

WASHINGTON (Reuters) – The US Federal Reserve raised interest rates on Wednesday and left untouched plans to gradually tighten monetary policy, saying the US economy should experience at least three more years of growth.

In a statement marking the end of the era of "accommodative" monetary policy, Fed policymakers raised the key rate of overnight financing by a quarter of a point to 2.00% to 2. , 25%.

The US central bank is still forecasting another rate hike in December, three more next year and an increase in 2020.

This would raise the policy rate to 3.4%, about half a point higher than the Fed's "neutral" interest rate, which rates do not stimulate or constrain the economy.

This restrictive policy should be maintained until 2021, the date of the Fed's latest economic projections.

"What people were watching, what they did and what they did was take away the word" accommodating "in terms of their monetary policy," said Michael Arone, chief investment strategist at State Street Global Advisors.

"This seems to indicate potentially that they believe that monetary policy is becoming less accommodative and is becoming more toward this neutral rate."

Fed Chairman Jerome Powell said the deletion of the wording, which was a key element of the central bank's guidance for financial markets and households for most of the last decade, did not mark change of perspective.

"Instead, it's a sign that the policy is going according to our expectations," said Powell, who took the lead of the Fed earlier this year at a press conference. after the release of the press release.

The US Treasury yield curve has flattened and the US dollar .DXY has briefly weakened against a basket of currencies. US equities initially increased their gains but fell back later in the session as bank and financial stocks were hit hard.

The Fed considers that the economy is growing at a faster than expected pace of 3.1% this year and continues to grow moderately for at least another three years, while unemployment remains low and inflation stable gets closer to his target of 2%.

"The labor market has continued to strengthen … economic activity has risen sharply," he said in his statement.

The Fed did not use a surrogate wording for the "accommodating" wording abandoned in its statement. This formulation has become less and less accurate since the central bank started raising rates at the end of 2015 from a near-zero level, and its withdrawal means that the Fed is now considering near-neutral rates.

NEW PROJECTIONS

Wednesday's rate hike again drew criticism from President Donald Trump, who has complained that the Fed's actions are thwarting his efforts to revive the economy.

"We are doing very well as a country. Unfortunately, they just increased the interest rates because we are doing so well. I'm not happy about that, "Trump told a press conference on the sidelines of the UN General Assembly in New York.

"I prefer to pay off debt or do other things, create more jobs. I worry so much about the fact that they seem to like to raise interest rates. "

Powell, at his press conference, declined to say whether Fed policymakers had discussed Trump's earlier criticisms of the central bank. Last month, Trump expressed dissatisfaction with rising rates and said the Fed should do more to stimulate the economy.

Powell, who was appointed by Trump and took the presidency of the Fed earlier this year, said the central bank would remain independent.

"We do not consider political factors or things like that," said the head of the Fed.

Wednesday's rise was the third this year and the seventh in the last eight quarters. According to the CME group, traders are pushing the 95% rate hike ahead of Wednesday's statement.

The latest Fed projections show that the economy will continue at a brisk pace until 2019, with gross domestic product growth of 2.5% next year, before returning to 2 , 0% in 2020 and 1.8% in 2021. fade

Inflation is expected to be around 2% over the next three years, while the unemployment rate is expected to fall to 3.5% next year and hold up until 2020 before rising slightly again. 2021.

The unemployment rate is currently 3.9%.

With risks described roughly balanced, the statement left the Fed on a stable path for next year.

The risks to current economic growth, such as the threat of a series of damaging global tariff increases, have been largely sidelined.

There was no disagreement in the Fed's policy statement.