In recognition of the strength of the economy, the central bank also signaled it will raise rates again later this year. | Brendan Smialowski/AFP/Getty Images Finance & Tax Fed vindicates Trump, projecting 3.1 percent growth as it raises rates

The Federal Reserve on Wednesday raised interest rates for the third time this year, projecting that U.S. economic growth will exceed 3 percent in 2018, in a vindication of President Donald Trump's longtime prediction.

In recognition of the strength of the economy, the central bank also signaled it will raise rates again later this year.


“Some of it is no doubt the effect of the fiscal policy changes, tax cuts and spending increases,“ Fed Chairman Jerome Powell said in his quarterly press conference after the central bank's two days of meetings. He also cited high levels of consumer and business confidence.

“This is a pretty good moment for the U.S. economy,” he said.

Trump said the Fed's action reflected the health of the economy.

The Fed is raising rates "because we're doing so well," he told reporters at a press conference. "We're doing much better than anybody ever thought possible."

Still, the faster pace of growth might be short-lived, according to the Fed. While the central bank estimates gross domestic product will expand 3.1 percent this year, it only sees growth of 2.5 percent next year, indicating that some of the bump from tax cuts and new federal spending might start to wear off.

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The economy by then could also face headwinds from the president's escalating global trade battles.

Powell told reporters that the tariffs have not yet translated to higher inflation or affected economic growth, but he emphasized that trade policy is a concern.

“We’ve been hearing a rising chorus of concerns from businesses all over the country about disruption of supply chains, materials cost increases and loss of markets,” he said.

“More than anything, though, I would worry in the longer run where this is going,” he added. “If the end place we get to is lower tariffs, that would be good. ... If this perhaps inadvertently goes to a place where we have widespread tariffs for a long time, a more protectionist world, that’s going to be bad for the U.S. economy and for Americans workers and families and also for other economies.”

Fed officials reaffirmed their estimates that three more rate hikes would be appropriate in 2019, with one more in 2020, at which point they expect growth to drop back down to 2 percent.

The central bank also projected that by 2021, growth will have slowed to 1.8 percent and unemployment will tick back up to 3.7 percent, after reaching lows of 3.5 percent in 2019 and 2020. Fed officials don't foresee any rate hikes in 2021.

The Fed is trying to return interest rates to a more normal level after keeping them near zero for roughly a decade to stabilize the economy after the worst recession since the Great Depression. After Wednesday's hike, its main borrowing rate is set between 2 and 2.25 percent.

In a much-anticipated move, the central bank also no longer characterizes its policy as actively supporting the economy. The Fed indicated previously that it would do this because it's nearing a point in its rate hike campaign where it doesn't know for sure how close it is to the so-called neutral rate, where it is neither boosting economic growth nor reining it in.

The Fed doesn't appear concerned with runaway inflation, projecting it to rise no higher than 2.1 percent over the next few years.

Powell acknowledged that inflation could start to pick up unexpectedly but added, “We don’t see that. We really don’t see that.“

This week's meetings were the first with new Fed Vice Chairman Richard Clarida.



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Interest Rates