US Federal Reserve nudges up interest rates again, expects more to come

US Federal Reserve nudges up interest rates again, expects more to come

Investors are expecting another quarter-point increase in interest rates Wednesday afternoon as the Federal Reserve's policymaking committee winds up its first two-day meeting under new Fed Chairman Jerome Powell.

The 2.8% uptick in average weekly earnings in the three months to January suggests that wage growth is starting to pick up more substantially, to the benefit of consumers.

USA indexes lifted following the announcement, with the Dow Jones rising as much as one per cent. This week, Powell presided over a Fed policy meeting for the first time since becoming chairman. Fed officials "will likely discuss the risks of a trade war during this meeting", she says, but the details of that discussion won't be available until the minutes of their meeting are released in three weeks.

The Fed is widely expected to raise the benchmark lending rate Wednesday.

However, its forecasts point to an extra increase in 2019 to three in total and it now sees terminal rates at 3.4% in 2020 as opposed to 3.1%.

Sterling finished up 1.01 percent at $1.4140 after data showed United Kingdom wages grew at their fastest pace in more than two years, supporting bets that the Bank of England would raise interest rates as early as May.

Analysts at ABN Amro also expect the dot-plot to rise reflecting higher interest rate expectations.

Home equity loans and auto loans with adjustable rates - most likely those made with a lender outside of the automaker - will begin to see higher rates next, Kapfidze said. It is sticking with the forecast it issued in December for three increases in 2018.

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In its first policy meeting under new Fed chief Jerome Powell, the US central bank indicated that inflation should finally move higher after years below its 2 percent target and that the economy had recently gained momentum.

"For every 100-basis-point increase in the fed funds rate, historically, it has been the case that the adjustable-rate mortgage rate would go up by 70 basis points", said Michael Cox, founding director of the O'Neil Center for Global Markets and Freedom at Southern Methodist University in Dallas, Texas.

While U.S. unemployment of 4.1 percent is the lowest since 2000, wage growth has remained moderate and inflation has been below the Fed's target for most of the last five years.

The Fed hiked its key interest rate on Wednesday, surprising no one, while signaling no rush to step up its gradual pace of monetary tightening. The unemployment rate remained at a 17-year low of 4.1 percent.

The Fed's preferred gauge of inflation stands at 1.5 percent.

USA stocks are trading higher Wednesday afternoon as investors await news on whether the Fed will raise short-term interest rates at the completion of its two-day meeting. Consumer spending, the economy's primary fuel, has slowed this year and has led many economists to downgrade their forecasts for growth in the January-March quarter.

However, the statement did not discuss the reasons for the rising growth rate, making no mention of the massive tax cuts the US Congress passed in December, which are expected to juice the economy at least in the short term.

Meanwhile, in data, U.S. total homes sales in February jumped to 5.54mln, up from 5.38mln, with economists having expected a reading of 5.4mln.

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