The US Federal Reserve has just raised interest rates again by 0.25 per cent

Lucy White
Janet Yellen, chair of the Fed, is due to cede her role next year (Source: Getty)

The US Federal Reserve has raised its benchmark interest rate by 0.25 per cent this evening, to a range between 1.25 per cent and 1.5 per cent.

Constituting the Fed's third hike this year, the move points to confidence from officials in the health of the economy. The US central banking committee also predicted stronger economic growth over the next three years, raising its growth forecast for next year from 2.1 per cent to 2.5 per cent.

However, it is also cautious about raising rates too quickly. Fed officials predicted that inflation would stay below the two per cent target next year, and then stay at two per cent in 2019 and 2020.

In her final news conference, outgoing Fed chair Janet Yellen said: "We expect that the job market will remain strong in the years ahead," adding that there would be "ample" opportunities for work and rising wages.

Yellen did confirm that some "changes to fiscal policy", including tax changes proposed by president Donald Trump, influenced the Fed's decision to raise rates. However she added that some of her colleagues on the Fed's Open Market Committee (FOMC) had been factoring these potential changes into their projections throughout the year.

“This rate hike appears to be based on anticipated growth in the coming months following President Trump’s tax reforms. With further rises predicted, the question now is how far the Fed will go as we head into the new year," said Dennis de Jong at online forex broker UFX.

“Following two rises already this year, a close eye will be kept on Fed Chair Janet Yellen’s successor, Jerome Powell, to see if he agrees with this course of action in 2018, or whether her recent lean towards a loose monetary policy still has time to play out."

Nancy Curtin, chief investment officer at Close Brothers Asset Management, added:

The move is a clear sign that the US economy is back on track to a full recovery. We are near full employment, domestic growth has been strong and the economy is benefiting from a synchronised global recovery.

Yet two members of the Fed's Open Market Committee were against a rate rise, reflecting concern about the lacklustre level of inflation.

US stocks and Treasury bonds extended early gains immediately following the announcement, as the S&P 500 and Dow Jones Industrial Average indices hit intra-day highs. The dollar remained under pressure against sterling.

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