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"In view of realized and expected labor market conditions and inflation, the Committee chose to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent".

The Fed said it expects to increase rates twice more this year.

"The economic outlook has strengthened in recent months", the Fed said in a statement following its two-day Federal Open Market Committee meeting. The statement described economic activity as rising at a "moderate rate", a slight downgrade from January, when the Fed described the economy as rising at a "solid rate". ARM rates are modified annually, so a 0.25 percentage point increase in the rate in March wouldn't have an immediate effect.

Wednesday's rate hike is the sixth time the Fed has lifted interest rates since the economy collapsed in 2008.

But the Fed's new forecast does envision marked increases in economic growth compared with its previous estimate: It raises the estimate to 2.7 percent growth this year, up from 2.5 percent in the December projection, and 2.4 percent in 2019, up from 2.1 percent.

"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.

But consider that approximately $62.50 a year has already been added as a result of the Fed's five rate hikes since late 2015, and interest payments may be up by $100 at the end of the year.

Powell noted the likely growth boost from the massive tax cuts the US Congress passed in December, and said there are aspects of the package that could help raise the potential growth rate.


Like many economists, Powell says that the slow pace of wage growth is a bit of a puzzle. Analysts expect that they will slightly raise their forecasts for economic growth and lower their projections for the unemployment rate. The unemployment rate remained at a 17-year low of 4.1 per cent.

Over the next few weeks, this increase will affect credit cards, adjustable-rate mortgages, vehicle loans, and other credit lines that don't have fixed rates. The central bank continues to project three rate hikes in 2018.

It's also the first Fed meeting since Jerome Powell took over as chairman, although so far Powell hasn't made any major breaks with the policies of predecessor Janet Yellen.

"Many of the forces that acted as headwinds to U.S. growth and weighed on policy in previous years are generating tailwinds now", she said earlier this month in a speech pointing to the recent fiscal stimulus from tax cuts and higher spending.

Benchmark 10-year notes last fell 5/32 in price to yield 2.8996 percent, from 2.881 percent late on Tuesday.

Inflation "is expected to move up in coming months and stabilise" around the Fed's target, it said.

Powell then commented on the strength of the economy and projections for future rate increases as inflation remains below the Fed's target of 2% despite a host of strengthening signs in the labor market.


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