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Fed hikes rates, but remains dogged by low inflation Add to ...

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In its upward march on interest rates, the U.S. Federal Reserve has just slowed its cadence, if only subtly. And the reason is a fear that it will get tripped up by inflation. Or, more accurately, a confounding lack of inflation – which, for a 21st-century central bank, is a major obstacle indeed.

In its rate decision Wednesday, the Fed’s policy-setting Federal Open Market Committee did go ahead with a widely expected quarter-point increase in its key rate, to a range of 1 to 1.25 per cent, the highest it has been since the global financial crisis hit in the fall of 2008. That’s the third rate hike by the U.S. central bank in the past six months, as the Fed continues to gradually rebuild rates from the near-zero levels that presided over the postfinancial crisis economic recovery. It even announced that it would begin a very, very slow reduction of its balance sheet later this year, unwinding the trillions of dollars’ worth of bonds it bought to prop up the U.S. economy and financial markets during and after the crisis.

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