Federal Reserve raises rates amid stronger economy

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That indicates a slightly faster rate of increases than analysts had expected, reflecting the Fed's view that economy is in good shape.

Fed officials expect to raise interest rates at least once more in 2018 and had been split on a possible fourth hike in their last meeting.

The unanimous vote brings the federal funds rate to a range of 1.75 to 2 per cent, but the quarterly economic forecasts show central bankers now expect the rate to end the year at 2.4 per cent rather than the 2.1 per cent projected in March.

This debt is based on the banks' prime loan rate, the interest rate used as a starting point for nonmortgage loans.

The Fed has raised rates seven times since late 2015 on the back of the economy's continuing expansion and solid job growth, rendering the language of its previous policy statements outdated.

The OECD and the Bank for International Settlements (BIS) have published papers in recent years discussing "zombie" companies - established businesses whose earnings don't cover their interest costs but which have been kept alive by post-crisis policies.

The Fed stopped that in 2014 and has made a start on reducing its holdings of trillions of dollars' worth of assets.

The Fed aims to achieve its mandates of maximizing employment and stabilizing prices by lowering rates to spur growth during times of economic weakness and raising rates to slow growth if the economy threatens to overheat. Over the near term, however, inflation may exceed the Fed's target level thanks to rising oil prices. The updated dot plot, which reflects voting FOMC members' expectations, showed two more rate hikes this year for a total of four; in March, officials saw three. And that means higher interest rates on plastic.

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However, higher rates would help savers earn more interest on their deposits.

The broad-based S&P 500 shed 11.22 points (0.40 per cent) to 2,775.63, while the tech-rich Nasdaq Composite Index dipped 8.09 points (0.11 per cent) to 7,695.70, retreating from Tuesday's record. The BoC will meet in July with a growing probably of a rate hike announcement.

Fed Chairman Jerome Powell said at a news conference that the USA economy has strengthened considerably since the 2007-08 recession and is in "great shape". Headline inflation projections stayed at 2.1 percent for 2019 and 2020.

The forecast for real GDP growth for 2018 was revised to 2.8 percent from 2.7 earlier.

While many economists think the current expansion will exceed the 1990's streak, some worry about what might occur once the impact of the tax cuts begin to fade and the Fed's gradual rate hikes begin to curb growth.

Inflation, which has been mysteriously low during the long economic recovery, has finally passed 2%, the level the Fed considers healthy. "Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly". Risks to the economic outlook appear roughly balanced.

This means that despite the rise in United States yields, the spread/differential between United States and India's 10-year bonds has been maintained at around 4.5-5 percent, which is attractive. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments.

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