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Homebuilders battered as Fed raises key rate

AP Economics Writer

WASHINGTON (AP) — The Federal Reserve took note of the U.S.’s resilient economy on Wednesday by raising the country’s benchmark interest rate for the second time this year and signaling that it may accelerate its pace of rate increases.

Even before the increase was announced, homebuilders were taking a beating on Wall Street. Their troubles stemmed in part from the fact that the Fed’s rate hikes can lead to higher interest rates for credit-card holders and homeowners with adjustable-rate mortgages or home-equity lines of credit.

The construction industry was already wrestling with rising costs for labor, material and available land.

And because of a shortage of available housing, fewer Americans are buying homes. Buyers had benefited in recent weeks when mortgage rates had ticked down. But with the Fed announcing a rate increase on Wednesday, that relief is now likely to be not last long.

Shares in KB Home fell by 6 percent. Shares in Meritage Homes Corp., PulteGroup, Lennar Corp. and Dr. Horton all slid around 5 percent. Materials companies and home improvement stores like Lowe’s are also being pressured.

The Fed now foresees adopting four rate hikes this year, up from the three it had previously forecast. The action means consumers and businesses will face higher loan rates over time.

The central bank raised its short-term rate by a modest quarter-point to a still-low range of 1.75 percent to 2 percent. With the economy now nine years into an expansion, the change is a result of steady economic growth, the job market’s strength and inflation pushing average prices up at the Fed’s target rate of 2 percent.

Economists said the Fed left little doubt that it’s prepared to increase the pace of its credit tightening to guard against high inflation later on.

“The labor market is getting tighter, and price pressures are picking up,” said Greg McBride, chief financial analyst at

“The Fed is prepared to be quicker about pushing rates higher.”

It was the Fed’s seventh rate increase since 2015, and it followed an increase in March this year.

The announcement helped resolved a debate in financial markets over whether the Fed under Jerome Powell, who succeeded Janet Yellen as chairman in February, might see a need to signal a possible acceleration in rate hikes. A statement the Fed issued on Wednesday suggested that Powell does.

At a news conference, Powell sought to portray the Fed’s actions as evidence mainly that the economy is doing well and not that the central bank is eager to accelerate its rate increases.

“The economy is in great shape,” Powell said.

He acknowledged that the Fed is hearing concerns from some business executives about the Trump administration’s combative trade policies, including anecdotal cases in which companies have postponed hiring or purchases.

But Powell added, “For now, we don’t see that in the numbers at all.”

Trump has slapped tariffs on steel and aluminum imports, has threatened additional tariffs on Chinese imports and has directed his administration to consider further duties on imported cars. Those polices have inflated steel and aluminum costs.

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