Fed raises rates and sees three 2017 hikes as Trump takes office
The US central bank raises interest rates for just the second time in a decade and predicts three more increases next year.
Wednesday 14 December 2016 21:45, UK
A stronger outlook for inflation and the wider economy has prompted the US Federal Reserve to lift interest rates and raise its rate path expectations for 2017.
The central bank's rate-setting committee said it had taken the unanimous decision to raise the federal funds rate - what banks charge each other for short-term loans - to a range of 0.50% to 0.75%.
It represented a quarter point increase - the first upwards move for a year and only the second in the last decade.
While that was widely expected, markets had not forecast the announcement that the Fed was now anticipating three further rate hikes in 2017 - up from two it had expected to implement next year back in September.
It had previously held back on raising rates this year amid some drags from key economic indicators including low inflation, weaker-than-expected jobs growth and external factors including the market fallout from the UK's Brexit vote.
The dollar rose, gaining more than a cent against the pound, in the wake of the announcement, though US stock markets fell back from record highs.
Brent crude oil lost 3% to trade just below $54 a barrel as an acceleration in borrowing costs next year was seen as a potential threat to growth.
The Fed's forecast upgrade also took into account the prospect of fiscal stimulus through extra infrastructure spending - promised by President-elect, Donald Trump.
However, policymakers only saw the economy expanding by 2.1% in 2017, barely higher than their earlier projection of 2%.
The lack of adjustments to central forecasts were interpreted as uncertainty over the possible policies to be pursued by a Trump-led White House.
His presidential campaign gave away little on a clear economic agenda but a forecast market meltdown failed to materialise following his surprise win over Hillary Clinton after he pledged a big uplift in investment and tax cuts during his victory speech.
Fed chair Janet Yellen told a news conference to outline the conclusions of the committee's meeting that its outlook could be affected by changes to fiscal policy - in other words, actions by Mr Trump and his administration.
She addressed speculation over her own future following criticism by Mr Trump, who accused the Bank of keeping interest rates deliberately low during the campaign, by insisting the prospect of a second term was out of her hands.
Jeremy Cook, chief economist at payments firm World First, said: "They've noted the strength in inflation and the jobs market but this is a central bank eager to know what kind of administration they will have to work with.
"Until then there was little chance of them basing policy on the pronouncements of someone who has a casual relationship with consistency."