US Federal Reserve increases key interest rate again

US Federal Reserve increases key interest rate again

The Fed raised US rates on Wednesday, as expected, but left its earlier forecast of three rate increases this year unchanged, disappointing some investors who had hoped for hints of a possible fourth hike in 2017. The US economic recovery has persisted and therefore it should be strong enough to deal with steadily rising rates.

There are some current student loan borrowers who will see their interest rates go up as a result of the Fed rate hike: those with variable rate student loans.

"We haven't in any way changed our view about where the economy is heading", Yellen said.

Fed chair Janet Yellen said: "The economy continues to expand at a moderate pace".

What rate exactly is the Federal Reserve changing and what type of direct impact does it have?

The rate is still low compared to the historical level, and reflects a still-accommodative monetary policy. "And, most importantly, no durable and significant acceleration of wage growth to healthy levels has happened yet".

Those concerns might be overblown according to one economist. It would be the Fed's second rate hike since December and a sign that the central bank's leaders are moving interest rates up at a faster pace this year. Now, it's on a roll.

Still, they recommend those wanting to buy a home to do so sooner than later as the Federal Reserve is expected to raise rates two more times this year.

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The Federal Reserve's decision to raise its interest rate environment at the March 2017 policy meeting was allowed by a strengthening U.S. job market and accelerating United States inflation. On an upbeat note, policymakers said business investment "firmed", after months of being "soft".

Normally, when the Fed raises short-term interest rates, it does so to tighten financial market conditions.

Yellen told reporters that the committee is still forecasting growth in the gross-domestic product (GDP) at around 2 percent through 2019.

But some analysts remain cautious as they still see the possibility of a faster pace of rate hikes this year if USA economic data remains robust.

The Fed's projections showed the economy growing by 2.1% in 2017, unchanged from the December forecast.

Since the presidential election, though, the 10-year yield has risen in anticipation that tax cuts, deregulation and increased spending on infrastructure will accelerate the economy and fan inflation.

The rate hike on Wednesday means that interest rates on a 30-year mortgage on a $125,000 home could cost as much as $50 more per month.

One might expect rising Fed rates to correspond with an increase in savings account rates and other bank rates for deposit accounts.