Federal Reserve raises interest rates again amid ‘strong’ jobs market

The Federal Reserve raised interest rates again on Wednesday, arguing that the US jobs market was “strong” and signalled it may accelerate the pace of increases next year.

The quarter percentage point rise to a range of 1.5% to 1.75% was the sixth such increase since 2015 and comes as the Fed appears to be moving, slightly, more quickly to end an era of historically low interest rates that began during the last recession.

The announcement came as the Fed chair, Jerome “Jay” Powell, gave his first press conference in the role he took over from his predecessor Janet Yellen in February. His surprise-free performance left US financial markets barely changed.

“The economic outlook has strengthened in recent months,” the Fed said in a statement. “Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate,” the Fed said in a statement.

The rise, which was unanimously approved, comes after Congress passed two major bills that may spur the economy. In January Donald Trump signed off on a $1.5tn tax cut that reduces corporate and income tax rates. In February Congress agreed to a $300bn two-year increase in federal funding.

The Trump administration has claimed the tax cuts will fuel US economic growth above 3% next year, significantly above the 2.5% growth it achieved last year, but Powell said the Fed did not expect growth above 3% in the near future.

“We have been through many years of growth rate around 2%,” said Powell. While there are elements in the tax cuts that could boost growth “we don’t know how big those effects will be”.

Last year the Fed indicated it would raise rates three times in 2018 but some economists have speculated that the central bank may accelerate that programme given the fiscal stimulus from Trump’s massive tax cuts and their potential to fuel inflation.

Powell was asked if there were signs of “bubbles” in the economy and said that some asset classes, certain equities and commercial real estate, did seem higher than the “historical average”.

However, he said the Fed was monitoring the situation it was not overly concerned. “If you put all that into a pie, what you have here is moderate vulnerability in our view,” he said.