U.S. Government Bonds Fall After Fed Raises Rates

US Federal Reserve raises key interest rate

The federal funds target rate, which is now between 1.75 and 2 percent, is the highest it's been in almost a decade, indicating that the nation's central bank has confidence the economy will continue to expand.

This marks the seventh time the Fed has hiked rates since 2015, per Reuters, and is part of a slow process to return rates to normal levels.

Projections released after the Fed's two-day meeting in Washington show policymakers expect the USA economy will grow 2.8% this year, while unemployment falls to 3.6%.

The Fed move came after a two-day meeting where its members discussed the robust state of the U.S. economy and the potential impact of a trade war amid rising tension between the USA and its largest trading partners. The projections show inflation rising 2.1% for the next three years. The Fed expects unemployment to fall to 3.6% this year, and, said Powell, "Most people who want to find jobs are finding them".

So-called core inflation - which excludes volatile items like energy and housing - is now 2.2 percent, around the level the Fed is looking for.

With employers hiring at a solid pace month after month, unemployment has reached 3.8 per cent.

Investors were expecting the increase.

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The Fed also signaled that it will raise rates more this year than previously expected - four times rather than three.

A gradual rise in inflation is coinciding with newfound economic strength. It kept borrowing costs that low after the financial crisis to encourage businesses and consumers to spend and grow the economy.

Eurozone Q1 employment rose 0.4% quarter over quarter, a slight acceleration from the 0.3% quarter over quarter in Q4 last year, but still leaving the annual rate at just 1.4% year over year, down from 1.6% year over year in Q4 last year and versus 1.7% in Q3 2017. Prices did not spike in response to the enormous monetary stimulus, nor has the job market cooled since 2015 when the Fed began tightening policy.

The Federal Reserve on Wednesday announced that it raised its benchmark interest rate, as had been widely expected. But if it miscalculates and overdoes the credit tightening, it can trigger a recession.

The statement by Fed officials explaining the vote also hinted at a slightly faster pace for future rate increases.

While many economists worry about a trade war harming growth, the Fed did not mention trade concerns in its statement. While Japan's central bank isn't expected to make any major policy shifts, anticipation is rising that the ECB may outline as early as this week plans to begin paring its bond-buying stimulus program as a prelude to ending them altogether.

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