Fed raises rates for second time in 3 months

Washington:  The Federal Reserve raised interest rates yesterday for the second time in three months, citing continued US economic growth and job market strength, and announced it would begin cutting its holdings of bonds and other securities this year.
The decision lifted the US central bank's benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent as it proceeds with its first tightening cycle in more than a decade.
In its statement following a two-day meeting, the Fed's policy-setting committee indicated the economy had been expanding moderately, the labor market continued to strengthen and a recent softening in inflation was seen as transitory.
The Fed gave a clear outline on its plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession.
"The committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated," the Fed said in its statement.
According to an addendum released with the policy statement, the Fed anticipates that the balance sheet reduction plan would feature halting reinvestments of ever-larger amounts of maturing securities.
The Fed sees the cap for Treasury securities to be $6bn per month initially, increasing in $6bn increments at three-month intervals over 12 months until it reaches $30bn per month.
For agency debt and mortgage-backed securities, the cap will be $4bn per month initially, increasing by $4bn at quarterly intervals over a year until it reaches $20 billion per month.
The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015.The central bank had pushed rates to near zero in response to the financial crisis.