US Federal Reserve Hikes Interest Rate Amid Trends That Show Slower Economic Growth for 2019
Marriner S. Eccles Federal Reserve Board Building (Photo: Wikimedia Commons)

The US Federal Reserve Bank has announced its decision to increase its key interest rate by a quarter of percentage point from 2.25% to 2.5%.

Federal Reserve Bank Chairman Jerome Powell said the strength of the US economy - which is expected to grow about 3% in 2018 - justified another rate rise, despite recent "cross currents" that have weakened the outlook.

"We think this move was appropriate for what is a very healthy economy," he said. "Policy at this point does not need to be accommodative."

This decision signals that the Federal Reserve has confidence in the US’s economic outlook but it did correct its growth projections for 2019 – from 2.5% to 2.3%. Powell said that while US growth remained strong, globally economic growth had become more patchy.

The increase comes despite unprecedented and vocal pressure exerted from US President Donald Trump to leave the interest rates unchanged. Trump has previously called the increases in interest rate “crazy” and “foolish” along with arguing that Federal Reserve’s policy was “the “biggest threat” to the US economy, larger than his trade-war with China.

The current Federal Reserve chairman Jerome Powell is a Trump appointee who said after announcing the hike in interest rates that “Political pressure or considerations play no role in their decision whatsoever.” The US President had tweeted just 24 hours ago against a possible interest rate hike.

Trump’s market reference did prove true as the US stock indices -- Dow Jones industrial average dropped 70 points after the announcement to finish down by 1.49%, while the S&P 500 lost 39.2 points, or 1.54%.

The Federal Reserve Chair however was not worried about the recent drops in the stock markets in December. He said the central bank was aware of the volatility in the stock markets but downplayed their importance. “We follow markets really carefully but remember, from a macroeconomic standpoint, no one market is the single dominant indicator,” he said.