Fed raises interest rates again as unemployment nears record lows

Fed raises interest rates again as unemployment nears record lows
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The Federal Reserve on Wednesday raised interest rates 0.25 points as the bank aims to prevent a tight labor market from driving inflation to unsustainable levels.

The central bank raised the federal funds rate to a 1.75–2 percent target range, the second increase under Fed Chairman Jerome Powell.

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The Fed was widely expected to raise interest rates Wednesday amid strong economic data. It’s the second rate hike under Powell, a Republican appointed to lead the Fed by President TrumpDonald John TrumpHannity urges Trump not to fire 'anybody' after Rosenstein report Ben Carson appears to tie allegation against Kavanaugh to socialist plot Five takeaways from Cruz, O'Rourke's fiery first debate MORE.

Powell faces a tricky balancing act as the Fed attempts to bring interest rates toward historical averages. The central bank is aiming to keep record-low unemployment and a glut of federal spending from pushing inflation beyond the Fed’s 2 percent target.

The 3.8 percent jobless rate is close to the lowest level ever seen in the U.S. There are more job openings than workers seeking employment in the country for the first time in recorded history, and recent inflation data shows prices inching through the Fed’s ideal threshold.

The Fed expects inflation to rise to 2.2 percent on annual basis in 2018 and not exceed that level through 2020.

Powell said that the Fed wasn't ready "to declare victory” on its dual goals of maintaining stable prices and unemployment.

"We want to make sure inflation stays near our 2 percent longer-run goal on a sustained basis."

Growth is also expected to stay close to almost 3 percent of gross domestic product (GDP) through the year, and Fed officials are eager to prevent the economy from overheating.

The Fed projected growth to hit 2.8 percent of GDP in 2018, up from 0.1 percent from its March estimate. The bank also forecast the unemployment rate to hit 3.6 percent, 0.2 below its March projection.

“If the economy evolves broadly as we anticipate, the federal funds rate will move to well within range of the normal level," Powell said.

Even so, raising rates too quickly could increase unemployment, which is well below what the Fed considers sustainable. That could prevent vulnerable Americans and pockets of the country still struggling from reaping the benefits of a strong economy.

A majority of Fed officials now expect to raise interest rates twice more in 2018, after being closely split on the issue in March. Eight members of the Federal Open Markets Committee, which set Fed interest rates, projected two more hikes this year, while five expected just one more.

While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing international trade disputes could slow U.S. growth.

Trump’s imposition of tariffs on steel and aluminum imports has enraged U.S. allies. Canada, the European Union and Mexico have all pledged to retaliate with tariffs on U.S. imports, which some studies show could cost the U.S. close to 200,000 jobs.

The whiplash trade tensions have also stifled business investment and long-term planning as the U.S., Canada and Mexico struggle to renegotiate the North American Free Trade Agreement.

Powell said that the Fed's business contacts have expressed worries about the impact of trade tensions , but that it isn't moved economic data.

“Concerns about changes in trade policies are rising, I think it’s fair to say.” Powell said. “We really don’t see it the numbers. It’s just not there, so I would put it down more as a risk.”

Updated at 4:22 p.m.