The Federal Reserve has raised its key interest rate for the fourth time this year to reflect the US economy's continued strength but signalled that it expects to slow its rate hikes next year.
Wednesday's quarter-point increase, to a range of 2.25 per cent to 2.5 per cent, lifted the Fed's benchmark rate to its highest point since 2008. It will mean higher borrowing costs for many consumers and businesses.
The Fed's move came despite President Donald Trump's attacks in recent weeks on its rate hikes and on Chairman Jerome Powell personally. The president has complained that the moves are threatening the economy. At a news conference after the Fed's announcement, Powell said Trump's tweets and statements would have no bearing on the central bank's policymaking.
The statement the Fed issued Wednesday after its latest policy meeting said only "some" further gradual rate increases are likely; previously, it referred simply to "further gradual increases." And its updated forecast projects two rate hikes next year, down from three the Fed had predicted in September.
US stocks had been sharply higher before the Fed's announcement but began falling afterward and then accelerated into a plunge during Powell's news conference. The Dow Jones industrial average closed down about 352 points. Investors were apparently hoping that Powell would go further than he did to signal a slowdown in interest rate increases. But bond prices surged, sending yields lower.
The central bank has raised rates with steady regularity as the US economy has strengthened. Wednesday's was the Fed's ninth hike since it began gradually tightening credit three years ago. But a mix of factors a global slowdown, a US-China trade war, still-mild inflation, stomach-churning drops in stock prices has led the Fed to consider slowing its rate hikes in 2019 to avoid weakening the economy too much.
It's now likely to suit its rate policy to the latest economic data to become more flexible or, in Fed parlance, "data-dependent."
"The Fed must tread more carefully as it contemplates further rate hikes," said Ellen Zentner, an economist at Morgan Stanley, who thinks the Fed "sees greater uncertainty around the path for policy next year."