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Federal Reserve Raises Benchmark Interest Rate

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WASHINGTON -

As widely anticipated, the Federal Reserve has raised its short-term federal fund rate -- what banks charge each other-- by 0.25 points to a range of 1.75 to 2 percent.

Fed officials voted unanimously on Wednesday to increase this key rate, which influences the flow and supply of money in the U.S. economy. The statement by Fed officials explaining the vote also hinted at a slightly faster pace for future rate increases. They removed previous language that the rate "is likely to remain, for some time, below levels that are expected to prevail in the longer run."

Federal Reserve policymakers expect to raise their benchmark interest rate four times this year, up from a March projection of three, reflecting their forecast that the unemployment rate will fall to a 50-year low later this year and inflation will rise more quickly.

The Fed also decided Wednesday to lift short-term rates for the second time this year, to between 1.75 and 2 percent. That suggests they will hike rates twice more this year to between 2.25 and 2.5 percent. Fed policymakers also expect three hikes next year, the same number they forecast in March, and one in 2020.

Fed officials expect unemployment to reach 3.6 percent by the end of this year, the lowest since 1969, down from an earlier forecast of 3.8 percent. Inflation will reach 2.1 percent late this year, slightly above the Fed's target, up from 1.9 percent previously forecast.

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