Fed raises key rate, foresees 2 more hikes

"The Fed is willing to wager that rates will need to be structurally higher than previously thought, in that its "long-run dot" moved slightly higher for essentially the first time after years of moving down". At least two further interest rate hikes are forecast for 2018 with more to come in the coming years as the nation looks to stay on guard against inflation. He also said he was surprised that wages did not further rise.

JOHN YDSTIE, BYLINE: In his first news conference since taking the reins as Fed chief from Janet Yellen, Powell gave an upbeat assessment of the US economy.

US stocks fell, while the dollar tumbled and Treasuries gained after the Federal Reserve's first decision under Chairman Jerome Powell came in less hawkish than some investors had been anticipating.

United States 10-year Treasury yields climbed to hit a one-month high while the dollar dropped against a basket of major currencies.

Following a whipsaw session, the S&P 500 closed lower as the central bank raised rates and signaled it will do so two more times this year as the economy continues to pick up speed. Normalisation of interest rates from ultra-low accommodative values means that the Fed would have the option of lowering rates to boost the economy. "We're trying to take that middle ground", he said in a news conference after his first policy meeting as head of the central bank.

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"A number of participants of the FOMC [the Fed board] did bring up the issue of tariffs", Powell said, adding that the Fed is hearing from many business leaders that "trade policy has become a concern going forward". Market watchers are concerned that this could lead to tit-for-tat responses from other nations, and hurt global economic growth.

"The guidance in terms of the future rate hikes is a touch more hawkish than originally expected".

"Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate". In addition, they expect the level to reach 3.4% in 2020 compared to 3.1% in the December forecast. Those higher estimates may reflect the expected impact of the additional government spending. The Fed said overall inflation was below 2 percent and expects it to stabilize around the 2 percent mark over the medium term.

Mr. Bostic also said "for the first time in a long time, I see the potential for inflation to run somewhat above the Fed's longer-run 2% [inflation] target as opposed to the below-target rate we have seen over the past six years".

Powell avoided attempts to get him to comment on specific aspects of trade or fiscal policy, but he noted the likely growth boost from the recent tax cuts, and said there are aspects of the package that could help raise the potential growth rate.