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Financial News: Fed Hikes Interest Rate, Maintains Forecast Through 2018

Fed Hikes Interest Rate, Maintains Forecast Through 2018

06/14/2017 - 14:06:00 (RTTNews)

(RTTNews) - The Federal Reserve on Wednesday raised its benchmark interest rate for the third time in three months despite signs the U.S. economy has cooled off in 2017.

The Federal Open Market Committee voted to raise fed funds to between 1% and 1.25% and will start "gradual" shrinking of its $4.5 trillion balance sheet "this year."

The Fed, tasked with promoting full employment and healthy inflation, was forced to deal with an unusual dilemma -- the unemployment rate has dropped to its lowest in 16 years, but inflation has weakened below the Fed's 2 percent target rate.

Their so-called 'dot plot' shows one more rate hike in 2017 and three more in 2018, but the Fed's accompanying statement offered little indication they plan to raise interest rates again this summer.

Policy makers say they are "monitoring developments closely," meaning they are likely wait for confirmation that recent economic weakness is "transitory."

In economic news this morning, U.S. retail sales in May were the weakest in 16 months, while employers added a paltry 138,000 jobs in the same month.

Meanwhile, the rate of inflation over the past 12 months has slowed to 1.9% in May from 2.7% just in February.

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