Powell marks start of Fed tenure with rate rise

It's not whether the Fed will hike rate — it's how many times

USA indexes lifted following the announcement, with the Dow Jones rising as much as one per cent.

Naturally, the positive showing also helped to bolster hopes that the Bank of England (BoE) will raise interest rates again in May, shoring up demand for the Pound (GBP) once again.

The Central bank hiked short-term interest rates by a quarter-point and predicts that rates will rise higher than previously expected in the coming years.

But because inflation has run below the Fed's target since they formally adopted it in 2012, markets don't have a good read on how policy makers would chart interest rate policy when inflation is above the target. Of the 15 Fed board members, six anticipate the Fed will hike four times this year and one believes five hikes will be necessary.

The S&P 500 Index of U.S. stocks were higher after Powell spoke, while the yield on 10-year U.S. Treasury notes were around 2.89 per cent, little changed from Tuesday.

"I remember that old saying, 'The best time to plant a tree was 20 years ago, and the second-best time is now, ' " he said.

But there's also a silver lining for savers: Because interest rates have been low for years, it's been tough to gain much extra ground in the form of interest when stashing away cash in savings accounts. The Fed is widely expected to raise rates, and investors will be watching closely for clues about how many more increases the central bank may make this year and also for the Fed's assessment of how the economy is doing. In fact, Powell told Congress recently that, in his personal view, the economy has strengthened since December, when Fed officials last updated their forecasts for the economy.

In its first policy meeting under new Fed chief Jerome Powell, the US central bank said inflation should move higher amid a stronger economy after years below its 2 percent target. Tighten too quickly and inflation may not meet its target of 2 percent - the level the Fed sees as healthy for the economy.

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The upward revision in their rate path suggests Fed officials are looking through soft first-quarter economic reports and expect a lift this year and next from tax cuts passed by Republicans in December.

In its statement the Fed said the economy had been expanding at a "moderate" rate and noted a slowdown in household and business investment.

A healthy job market and a steady if unspectacular economy have given the Fed the confidence to think the economy can withstand further increases within a still historically low range of borrowing rates. Growth will be 2.4 percent next year, the Fed expects, up from 2.1 percent.

Fed officials were split on whether this week's policy meeting was the appropriate time to signal a fourth rate hike in 2018.

Economists are wondering whether faster economic growth might cause the Fed to pick up the pace of its rate hikes. The Dow Jones industrial average was up 140 points, or 0.6 percent; it had been up 210 just before the announcement.

Federal Reserve Chair Jerome "Jay" Powell also sounded a warning about rising trade tensions.

U.S. officials are tipped to confirm on Thursday additional investment restrictions on China to help close, what it says, is a $375bn trade deficit with the world's second largest economy.

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