Nearly a year to the date since the Federal Reserve raised interest rates for the first time in roughly a decade, and after much speculation that a rate increase would occur this year, the Fed finally made due on its intent this week to raise rates once again.
In view of realized and expected labor market conditions and inflation, the Federal Open Market Committee (FOMC) within the Federal Reserve System announced it has decided to raise the target range for the federal funds rate to 0.50% to 0.75%, up from the previous range of 0.25% to 0.50% announced in December 2015.
“The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation,” the FOMC said in a press release issued Wednesday.
The decision to raise rates follows information received since the FOMC met in November that indicated the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.
The FOMC cited “solid” job gains in recent months and a declining unemployment rate, as well as rising housing spending, behind its reasoning to raise rates. Additionally, inflation, which has increased since earlier this year, remains below the Committee’s 2% longer-run objective.
“The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further,” the FOMC stated.
While the FOMC anticipates inflation to rise to 2% over the “medium term,” it notes that near-term risks to the economic outlook appear “roughly balanced.”
“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the FOMC stated.
Written by Jason Oliva