Fed boosts interest rate, predicts two more hikes this year

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Fed officials were split on whether this week's policy meeting was the appropriate time to signal a fourth rate hike in 2018.

The Federal Reserve on Thursday increased the benchmark interest rate a quarter point to a target range of 1.5 per cent to 1.75 per cent, citing a stronger U.S. economic outlook in recent months.

In an accompanying statement, it said "the economic outlook has strengthened in recent months" and inflation "is expected to move up in coming months and stabilize".

"A number of participants of the FOMC [the Fed board] did bring up the issue of tariffs", Powell said, adding that the Fed is hearing from many business leaders that "trade policy has become a concern going forward".

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"But with the U.S. output gap closing, and fiscal policy ramping up, it's a matter of time before he will need to make tougher decisions that really might upset his boss", Nash said.

If the Fed does stick with its new forecast for three rate increases this year and three in 2019, its key policy rate would stand at 3.4 percent after five years of credit tightening. Powell, a former Fed governor, succeeded Janet Yellen last month.

Stocks greeted the Fed's interest-rate increase with volatile trading Wednesday, as the central bank delivered the expected hike but Chairman Jerome Powell gave the market some angst.

The Fed's favoured measure of core year-on-year price growth was 1.7 per cent in the 12 months to January (inflation has remained persistently muted throughout the current expansion), but policymakers are getting more confident about the outlook for price growth. Unemployment is now expected to fall to 3.8 percent this year and 3.6 percent in 2019, which would be the lowest level since 1969.

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Higher rates serve savers, as interest rates on deposits would rise, and mean higher rates for borrowers.

The Federal Reserve hiked interest rates to a range of 1.50% to 1.75% on Wednesday.

With this latest increase in interest rates, trucking companies with floating or variable interest rates may want consider refinancing into a fixed-rate loan, according to Anthony Sasso, head of TD Equipment Finance at TD Bank. They forecast headline inflation of 1.9 percent for this year, 2 percent in 2019, and 2.1 percent in 2020. Fed officials predicted the rate also would settle even lower at 4.5 per cent in the longer run.

Said said tax-oriented leases enable companies to take advantage of reduced rates that are passed through by the lessor, and in some instances, afford the opportunity to purchase the equipment at the conclusion of the lease at an agreed-upon value at the time of lease origination. Currently, news conferences come after only four of the Fed's eight meetings each year.

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Yet when he testified to Congress again two days later, Powell tempered his view: He stressed that the Fed still thinks it has room to maintain a moderate pace of rate hikes, in part to allow Americans' average wages, which have stagnated for years, to pick up.