The Fed’s interest rate-setting body said in a statement that it expects inflation to reach its 2 percent target “in the coming months.” | Getty Fed raises rates, signals quicker pace for future hikes

The Federal Reserve on Wednesday raised interest rates for the first time this year and signaled it will act more aggressively to head off inflation, potentially threatening President Donald Trump’s hopes for faster economic growth.

Fed officials are now essentially split on the question of whether to hike interest rates a total of three times or four this year — a response, in part, to recent tax cuts and increased spending by Congress, which the central bank fears could lead prices to spike.


The Fed’s interest rate-setting body, the Federal Open Market Committee, said in a statement that it expects inflation to reach its 2 percent target “in the coming months.” The committee unanimously agreed to raise its main borrowing rate to between 1.5 percent and 1.75 percent, the first action taken under new Chairman Jerome Powell.

There is some good news for Trump. Fed officials upgraded their forecast for economic growth this year and next, projecting a 2.7 percent increase in GDP in 2018 and a 2.4 percent increase in 2019. But over the longer term, the central bank still expects growth to hover at or below 2 percent.

Trump is aiming for sustained annual GDP growth of 3 percent.

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“That is well above almost all estimates — current estimates of potential long-run growth,” Powell said of Trump's goal, in his first press conference as head of the Fed. He said Fed officials aren’t sure what the ultimate impact of tax cuts and increased federal spending will be, though he said they hope the moves will boost productivity.

“Broadly speaking, participants believe there will be meaningful increases in demand from the new fiscal policy for at least the next, let’s say, three years,” he said, as well as the potential for more investment driven by lower corporate tax rates. “It’s uncertain, though.“

Fed officials projected unemployment would fall to 3.8 percent this year and 3.6 percent next year, and then balance out at about 4.5 percent over the longer term. That would be the first time the jobless rate dipped below 4 percent since the 1960s.

“The economic outlook has strengthened in recent months,” the FOMC said in its statement.

Although the Fed’s median projection is still for three rate increases this year, four hikes are a real possibility, since some of the central bank officials who are most vocal about waiting for further increases — such as Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans — are not voting members this year.

The Fed is also projecting three rather than two hikes for 2019.

Rep. Erik Paulsen (R-Minn.), who chairs the Joint Economic Committee, praised the Fed’s decision to hike rates and defended the growth from recent tax cuts as making the economy healthier.

“America’s new and faster growth is sustainable because Congress and the new administration have pursued policies that bring American workers back to work and allow businesses to invest,” Paulsen said in a statement. “I welcome this move by the Fed as part of its longstanding plan to normalize monetary policy, given that the economy itself is just returning to normal.”

Powell faced multiple questions from reporters Wednesday about impending U.S. tariffs on steel and aluminum globally, as well as on China more specifically. He said the committee discussed the topic, although it didn’t affect their current outlook for the economy.

“Trade policy has become a concern going forward” for the Fed’s business contacts, he said.

He added later that the threat of “more widespread retaliation” is a relatively new risk that the Fed is watching.

