Federal Reserve announces interest rate hike

(KGTV and CNN) - The Federal Reserve raised interest rates Wednesday for the second time this year at the end of its two-day policy meeting.

The federal funds rate, which helps determine rates for mortgages, credit cards and other borrowing, now stands at a range of 1.75% to 2%.

Americans can look to the strong economy: The unemployment rate is 3.8% nationwide and 2.9% in San Diego, as of April. Wages are rising and inflation is at a level the Fed considers healthy.

Policy makers are divided on whether to raise rates a total of three times this year or four. The official plan, CNN reports, is for three hikes. But the Fed has hinted at a more aggressive pace in the coming years to keep the economy from overheating. In March, it shifted its plan for 2019 and called for three hikes instead of two.

Fed officials will release updated economic forecasts on Wednesday. Those could hint at plans for acceleration. But Wall Street isn't betting on it.

"Following the June hike, we continue to expect only one additional hike this year before the Fed pauses at its December meeting," said Ellen Zentner, a Morgan Stanley economist.

AVOIDING A RECESSION

The Fed has been trying to strike a balance: It wants to raise interest rates steadily to keep the economy from overheating, but raising rates too quickly could help start a recession.

One way the Fed judges how quickly to act is by watching inflation. After years of stubbornly low inflation, the Fed's preferred measure finally reached the Fed's target of 2% in March and April.

Fed officials have made clear they won't overreact if inflation overshoots that target. Some of them signaled last month that they would be more than comfortable if inflation were "modestly" above 2% "for a time," according to minutes of their May meeting.

So far, the Fed hasn't defined how much of an overshoot in inflation it would tolerate — or for how long. Policy makers could provide further clues this week.

TRADE TENSIONS

Fed Chairman Jerome Powell will hold a news conference after the decision is announced. He’s expected to face questions about escalating trade tensions, and what they might mean for the economy and monetary policy.

Trade tensions are even higher after President Trump disavowed a joint statement at the Group of 7 meeting over the weekend in Canada. After he refused to sign, he insulted Canadian Prime Minister Justin Trudeau in a series of tweets.

The Trump administration has also imposed steel and aluminum tariffs on Canada, Mexico and the European Union, all US allies. Talks to renegotiate NAFTA are deadlocked. And the White House is planning steep tariffs on Chinese goods.