Fed Raises Interest Rates

The Federal Reserve hiked interest rates for the first time in nearly ten years Wednesday, signalling faith that the worst of the 2007-2009 financial crisis was over.

The range of the central bank’s benchmark interest rate was raised by a quarter of a percentage point, to between 0.25-percent and 0.50-percent.

While small, the hike will affect millions of Americans, increasing the interest rate on bank deposits and mortgages. It will also increase spending on the federal debt, notes the Committee for a Responsible Federal Budget, which argues interest spending will be the fastest growing part of the budget this decade.

Federal Reserve chairwoman Janet Yellen made clear that the rate hike would only do “gradual increases” in interest rates, which are likely to remain low “for some time.” Yellen repeatedly said during her press conference that future rate hikes will be “gradual.”

In deciding its next move, the Fed would put a premium on monitoring inflation, which remains mired below a target of 2-percent a year. The U.S. inflation rate is currently near zero. The Fed sees inflation inching up in the years to come, but not hitting 2-percent until 2018.

New economic projections from Fed policymakers were largely unchanged from September, with unemployment anticipated to fall to 4.7 percent next year and economic growth at 2.4 percent.

Wages, which have remained mostly stagnant since 2008, have recently seen an uptick.

Economists have been debating the health of the U.S. economy for months, some wanting an increase and others saying the economy is not stable enough. Today’s Fed hike hits a compromise between the two camps.

Leave a Reply

Your email address will not be published.