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Fed set to raise interest rates

WASHINGTON: The US Federal Reserve on Wednesday was widely expected to increase interest rates for only the second time in a decade when it wraps up a two-day meeting, the central bank`s first since Donald Trump`s election victory.

MembersoftheFederalOpenMarketCommittee, which sets interest rates, were divided over the summer about the dangers of inflation and the timing of interest rate increases, with the more dovish central bankers pointing to slack in labour markets and the absence of clear signs of inflation.

But robust hiring, strong third-quarter growth and unemployment at a nine-year low have strengthened the case for members f avouring a rate hike.

Official figures on producer prices released by the Labour Department on Wednesday also contained signs of looming inflation, supporting the view that policymakers will raise rates to keep prices stable.

With a rate hike adopted, markets will look to see what signals the Fed sends for the course of monetary policy in 2017.

As of September, the median projection among Fed members was for two rate increases next year.

Fed funds futures currently expect a rate hike in June but are indecisive about subsequent increases in 2017. But analysts say the Fed may have to raise rates more aggressively in the coming year, with Trump`s new Republican administration expected to move for stimulus to jumpstart the world`s largest economy.

`I expect a rate hike in December and then not one until April,` Mark Zandi, chief economist at Moody`s Analytics, told AFP.

Zandi said Trump`s election shifted the political dynamics for monetary policy, with larger deficits and debt likely to support stimulus that may call for sharper rate increases from the Fed.-AFP