The US central bank has announced an interest rate rise to a target range of 1.5% to 1.75%, according to BBC News.
The Federal Reserve said the 0.25% change was being made to reflect a strengthened economic outlook. It was also hinted that interest rates would be raised twice more this year, while forecasts were also raised for increases in 2019.
The chairman of the Federal Reserve, Jerome ‘Jay’ Powell also expressed concern about trade tensions following the US government’s announcement of tariffs on steel and aluminium entering the US and the threat of sanctions targeted at China.
At a press conference, Powell said bankers and business leaders see the trade tensions as “a risk to the outlook.”
Members of the Federal Open Markets Committee, the body that votes on rate changes, forecast that the US economy will grow by 2.7% in 2018, above the 2.5% predicted in December 2017.
Members also expect higher interest rates in 2019 and 2020 than was the case in December 2017, which Brian Coulton of Fitch Ratings described as a “firming up of the future trajectory of policy tightening.”
Following the ultra-low interest rates put in place following the financial crisis, the Federal Reserve has been slowly increasing rates since 2015. The challenge for the central bank is to balance low unemployment with the potential for higher inflation.