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Wall Street loses ground as Fed signals two more hikes this year

Wall Street loses ground as Fed signals two more hikes this year

The Federal Reserve on Wednesday raised its benchmark interest rate a quarter percentage point, marking the seventh such move since the end of 2015.

The Federal Reserve raised interest rates on Wednesday, a move that was widely expected but still marked a milestone in the USA central bank's shift from policies used to battle the 2007-2009 financial crisis and recession.

Besides raising its projection for rate increases this year from three to four, the Fed removed a key sentence from the previous statement that had been viewed as foreseeing a need to keep rates low for an extended period.

And a majority of policy makers said they now expect a total of four interest rate increases this year.

Projections released after the Fed's two-day meeting in Washington show policymakers expect the U.S. economy will grow 2.8% this year, while unemployment falls to 3.6%.

According to CNBC, the Reserve released new data this week showing the GDP forecast rose to almost 3%, up from the previous predictions of 2.7%.

Estimates of longer-run interest rates were unchanged and seen reaching as high as 3.4 percent in 2020 before dropping to 2.9 percent in the longer run.

The Fed has long aimed for 2 percent inflation, a level policymakers think is key to a healthy economy.

Policy makers said in a one-page statement that the labor market "has continued to strengthen" and than economic activity "has been rising at a solid rate". It also forecast an even lower unemployment rate of 3.5% for 2019 and 2020.

Though rates are now roughly positive on an inflation-adjusted basis, the Fed still described its monetary policy as "accommodative", with gradual rate increases likely warranted as a sturdy economy enters a 10th straight year of growth.

U.S. unemployment dropped to 3.8% in May, its lowest level since April 2000 and one of the lowest levels since the second world war.

The Fed's latest projections show unemployment falling to 3.6 percent in 2018. It then raised rates once in 2015, once in 2016, three times in 2017 and now twice this year.

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. But if it miscalculates and overdoes the credit tightening, it can trigger a recession.

Powell faces a tricky balancing act as the Fed attempts to bring interest rates toward historical averages. All those countries have vowed to retaliate against any US tariffs with their own penalties against USA goods.

A global trade war would risk cutting into USA economic growth by depressing American export sales and raising inflation by making consumers and businesses pay more for imports.

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