US Federal Reserve raises interest rates for third time since financial crisis

John-Paul Ford Rojas, Business Reporter

The US Federal Reserve has raised interest rates by a quarter of a percentage point - the second rise in three months.

It is only the third time rates have been hiked since the 2008 financial crisis and comes as the world's biggest economy sees steady economic and jobs growth.

The change - which was widely expected - increases rates to a range of 0.75% to 1%.

Policymakers stuck to their previous outlook that there would be two more hikes this year.

US shares saw gains and the dollar fall sharply on the lack of any suggestion that rate rises might accelerate.

The Fed's projections also saw the US economy growing by 2.1% in 2017, unchanged from its December forecast.

Official jobs figures published on Friday - which were better than expected - cleared the way for the latest rate hike.

Steadily increasing rates are a sign that the US is gradually being weaned off the stimulus of cheap borrowing costs that helped nurse it back to health after the recession.

Fed chair Janet Yellen said: "The economy continues to expand at a moderate pace."

Prospects for growth - and inflation - have been bolstered by Donald Trump's plans for tax cuts and a major programme of infrastructure spending.

Economists think the next Fed hike will come no earlier than June as the central bank will want time to assess the likelihood that Mr Trump's plans will be passed by Congress.

Rising US rates have global repercussions especially for developing countries most vulnerable to higher dollar borrowing costs.

It contrasts with the UK, where rates were slashed to 0.5% in 2009 and cut further to 0.25% in the wake of last year's Brexit vote.

The Fed's last rates hike prior to the financial crisis was in June 2006.

Rates were cut to near-zero in December 2008 and it was seven years before they were increased by a quarter percentage point in December 2015, increasing again by 0.25% a year later.

Lucy O'Carroll, chief economist at Aberdeen Asset Management, told Sky News it would have been an "enormous surprise" if the Fed had not raised rates in its latest policy announcement.

She said policymakers did not seem too worried about the possibility of soaring inflation.

"I think it was a very measured and reassuring message," she said.