Fed raises key rate to 2-2.25%, says more to come

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WASHINGTON-The Federal Reserve raised benchmark interest rates by 25 basis points after its two-day policy meeting concluded September 26, and signaled it wants to continue gradually lifting them through 2019.

Sean Callow, Senior Currency Strategist at Westpac Bank, says it's hardly surprising the Fed is considering taking policy into restrictive territory given the current strength of the U.S. economy, nor why it's helping to boost the USA dollar.

Whatever the outcome of Fed policy, Powell dismissed President Donald Trump's criticism of previous rate hikes. Have the economic and financial responses followed history or deviated from it? "How can Fed policy possibly not be accommodative when the real funds rate is still zero?" tweets David Rosenberg, chief economist and strategist at Gluskin Sheff. That's a significant jump from the 4.45 percent rate of the prior school year, and it's the highest since 2009-10, when it was 5.6 percent.

But Mr Powell said the U.S. economy has successfully absorbed the increases so far, performing better than expected. A CNBC survey found that 98% of respondents expected the Fed to hike rates this month, while 96% predict another quarter-point hike in December.

"The Fed seems to have grown more convinced of the need to keep raising rates beyond neutral levels".

Meanwhile, the Fed's headline inflation projection for 2019 edged down to 2.0 percent from 2.1 percent.

- The Associated Press contributed reporting. That's in line with their estimate for the economy's long-run potential and contrasts with the Trump administration's goal of sustained 3 per cent growth. "With the low odds of a spike in inflation, it makes sense that the Fed would pause after the March rate hike and allow the markets to adjust to its new policy", he said.

The Federal Reserve has voted to raise its benchmark interest rate for the third time this year, fueled by a strong economy. Rates are low by historical standards given an unemployment rate below 4% and, in recent months, accelerating economic growth.

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For financial markets and the economy, the key won't be whether the Fed will remove accommodation but when it will end its tightening path.

Benchmark U.S. crude oil fell 1 percent to $71.57 per barrel.

But for 2019, Fed officials expect growth to slow to 2.5% amid worries about the growing trade rift between the United States and China.

The Fed's actions and its updated economic forecasts had been widely anticipated. Those people, he noted, will benefit from the Fed's increase in short-term rates.

The statement came with a clear signal for investors, one that suggests more hikes are coming.

The Fed is created to be independent of political interference, and presidents generally avoid commenting on monetary policy. Inflation has risen in the a year ago, but in recent months it has stalled.

The Fed once again said "further gradual increases" would allow continued expansion of the economy while keeping inflation around the Fed's 2% target. It sees price increases remaining in check, rising 2.1 percent over the next three years.

It forecasts the economy will grow at a faster-than-expected three-point-one percent this year, .an upward revision from the two-point-eight percent projection back in June, . adding it will continue to expand moderately for at least three more years. The "new normal" may be different than what it used to be, but most likely not by as much as many perceive. The views expressed in this column are the author's own and do not reflect those of Berenberg Capital Markets, LLC.

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