Fed Raises Key Interest Rate, Citing Strengthening Economy

by admin December 14, 2016 at 7:30 pm



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Federal funds target rate


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The Federal Reserve raised its target rate for only the second time in more than a decade.

WASHINGTON — Citing the steady growth of the American economy, the Federal Reserve said Wednesday that it would increase its benchmark interest rate for just the second time since the 2008 financial crisis.

The widely expected decision moves the Fed’s benchmark rate to a range between 0.5 percent and 0.75 percent, still a very low level by historical standards.

Photo

Janet L. Yellen, the chairwoman of the Federal Reserve.

Credit
Brendan Smialowski/Agence France-Presse — Getty Images

In announcing the decision, which followed a two-day meeting of the Fed’s policy-making committee, the central bank gave little indication that the election of Donald J. Trump has altered its economic outlook. The Fed said it still expected a slow economic expansion, and it still expected to continue a slow march toward higher rates. Fed officials said they expected to raise rates three times in 2017.

The Fed’s statement Wednesday said “that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since midyear.”

The decision was taken by a unanimous vote of the 10 members of Federal Open Market Committee, the first time in recent months the Fed has acted by consensus. The Fed is holding rates at low levels to support economic growth by encouraging borrowing and risk-taking. The committee’s statement said it judged that the economy still needs help.

The Fed’s economic outlook was essentially unchanged from the last round of forecasts in September. Fed officials continued to predict the economy would expand at an annual rate of about 2 percent for the next few years. They expect little further decline in the unemployment rate, which stood at 4.6 percent in November. Inflation, meanwhile, is expected to reach 2 percent — the pace the Fed regards as healthy — and then stay there.

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