US Fed raises interest rate by 25 basis points

Washington, Dec 14 (IANS) The US Federal Reserve has raised the benchmark interest rate by 25 basis points, the third such increase in 2017.

"In view of realized and expected labor market conditions and inflation, the (Federal Open Market) Committee decided to raise the target range for the federal funds rate to 1.25 to 1.5 per cent," said the Fed in a statement on Wednesday after concluding a two-day monetary policy meeting, Xinhua reported.

The central bank officials still envisioned three more rate hikes in 2018, unchanged from their forecast in September, according to the latest quarterly projections released on Wednesday.

Fed officials continued to hold upbeat assessment of the overall economy and job market and remained concerned over the soft inflation reading.

"Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate," said the statement.

According to officials' forecast, the US economy will grow 2.5 per cent both in 2017 and 2018, higher than their forecasts in September which projected a 2.4 per cent growth for 2017 and 2.1 per cent increase for 2018.

In view of recent solid job growth, Fed officials expected the unemployment rate will maintain at 4.1 per cent by the end of 2017, lower than September's forecast of 4.3 per cent.

The jobless rate will further drop to 3.9 percent in 2018.

However, it pointed out the declines of overall and core inflation indexes this year and reiterated that it is monitoring inflation developments closely.

Fed officials slightly revised up their forecast for inflation in 2017 to 1.7 per cent from September's projection of 1.6 per cent.

Due to the soft inflation reading, presidents of Chicago Fed and Minneapolis Fed voted against the decision, arguing that the central bank should keep interest rate unchanged at this meeting.