WASHINGTON — The Federal Reserve raised its key interest rate Wednesday in a vote of confidence in the U.S. economy’s durability while signaling that it plans to continue a gradual approach to rate hikes for 2018 under its new chairman, Jerome Powell.
The Fed said it expects to raise rates twice more this year. And it increased its estimate for rate hikes in 2019 from two to three, reflecting more optimistic expectations for growth and low unemployment.
In a statement after its latest policy meeting, the Fed said it boosted its key short-term rate by a modest quarter-point to a still-low range of 1.5 percent to 1.75 percent. The Fed also said it will keep shrinking its bond portfolio. Many consumers and businesses will face higher loan rates over time.
The Fed’s actions and forecasts suggest a belief that the economy remains sturdy even nearly nine years after the Great Recession ended.
The Fed’s latest rate hike marks its sixth since it began tightening credit in December 2015 after having kept its benchmark rate at a record low near zero for seven years to help nurture the economy’s recovery from the recession.
If the Fed sticks with its forecast for three rate increases this year and three in 2019, its key policy rate would stand at 3.4 percent after five years of credit tightening. Wednesday’s forecast put the Fed long-term rate — the point at which its policies are neither boosting the economy nor holding it back — at 2.9 percent.
At a news conference after the meeting, Powell said the Fed hasn’t lowered its forecasts for growth because of the Trump administration’s decision to impose tariffs on steel and aluminum imports. But he said the Fed’s regional bank presidents have heard concerns from businesses about the consequences of the tariffs.
“Trade policy has become a concern going forward for that group,” the chairman said, referring to business leaders.
But among the Fed officials who met in Washington this week, Powell said, “there’s no thought that changes in trade policy should have any effect on the current outlook.”
The Fed’s new forecast envisions somewhat stronger 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.
Those higher estimates might reflect the expected impact of the additional government spending. But they fall short of the 3 percent annual growth that the Trump administration has argued will be achieved with the implementation of its economic program.