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Federal Reserve voted for rate hike eyeing possible U.S. inflation surge

The Fed's vote this month activated the first rate hike since December 2015.

By Doug G. Ware
The Federal Reserve on Wednesday released its minutes report from its Jan. 31-Feb. 1 meeting, at which it raised key interest rates for the first time in more than a year. File Photo by Alexis C. Glenn/UPI
The Federal Reserve on Wednesday released its minutes report from its Jan. 31-Feb. 1 meeting, at which it raised key interest rates for the first time in more than a year. File Photo by Alexis C. Glenn/UPI | License Photo

Feb. 22 (UPI) -- The U.S. central bank on Wednesday cited improving economic signals as a reason for the decision this month to raise key interest rates by a quarter-point.

The Federal Reserve minutes outlined the Federal Open Market Committee's assessment of the domestic economy on Feb. 1.

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"The Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals," the report stated.

The Fed noted that the gross domestic product has expanded at a medium pace and the labor market continues to remain strong.

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"The unemployment rate edged up to 4.7 percent but remained near its recent low, while the labor force participation rate rose slightly," the board said.

However, inflation between December and February remained below the committee's 2 percent inflation target, the FOMC said. The board, though, decided that inflation might rise quicker than expected due to President Donald Trump's economic policies.

"The committee might need to raise the federal-funds rate more quickly than most participants currently anticipated to limit the buildup of inflationary pressures," the report said.

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At its December policy meeting, the Federal Reserve chose not to raise the federal funds rate, leaving it at the 0.25-0.50 target range it set a year earlier. At this month's meeting, the board increased the rate a quarter-point to between 0.50 and 0.75.

The FOMC voted unanimously for the increase and said it expected three separate quarter-point increases in 2017.

For all of 2016, the Fed resisted rate hikes largely due to inflation, which experts view as a gauge on economic health and a benchmark on whether higher rates can be tolerated.

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"The staff continued to project that real GDP would expand at a modestly faster pace than potential output in 2017 through 2019. The unemployment rate was forecast to edge down gradually through the end of 2019 and to run below the staff's estimate of its longer-run natural rate," the minutes stated.

Federal Reserve members said this month that the next rate hike could occur at the board's next policy meeting March 14.

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