16 Mar 2017

Federal Reserve raises rates as expected

8:19 am on 16 March 2017

The US Federal Reserve has raised interest rates, as expected, and signalled it expects another couple of hikes this year as the American economy performs strongly.

The benchmark rate was raised by a quarter of a percentage point to a range of 0.75 to 1.0 percent, following a similar sized increase in December.

The Fed's policy-setting committee's forecast showed it intended to stick to its previous policy of "gradual" tightening, with two more rate rises this year, and three rises in 2018.

"With gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace," the Fed said in a statement.

According to the policy statement, risks to the outlook remained "roughly balanced".

It said inflation was tracking close to its target of 2 percent, but signalled that it might tolerate prices rising at a faster rate, which was taken as dovish signal.

"It relieves some of the fears we've had that perhaps the Fed was going to raise rates faster in the future. They've chosen not to signal that," said Brad McMillan, Chief Investment Officer at Commonwealth Financial.

The US dollar fell after the statement. After the statement the New Zealand dollar was trading at US70 cents from 69.6c.

US stock markets extended their gains and wholesale interest rates were lower.

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