The hike in the federal funds rate, the short-term interest rate at which banks lend to each other, still leaves the rate below the historical norm at 0.75 to 1 percent. But the Fed said it anticipated future “gradual increases,” as the country’s economic activity and labor market improve steadily, and inflation eventually stabilizes around a target of 2 percent.
The expected move comes after positive news in the January jobs report and continued prosperity on Wall Street—a change from past market concerns around such activity. More from the Associated Press:
In 2013, then-Chairman Ben Bernanke sent markets into a panic merely by mentioning that the Fed was contemplating slowing the pace of its bond purchases, which it was using then to keep long-term borrowing rates low. But now, the economy is widely considered sturdy enough to handle modestly higher loan rates. Inflation, which had stayed undesirably low for years, is edging near the 2 percent annual rate that the Fed views as optimal. And while the broadest gauge of the economy’s health — the gross domestic product — remains well below levels associated with a healthy economy, many analysts say they’re optimistic that Trump’s proposed tax cuts, infrastructure spending increases and deregulation may accelerate growth. Those proposals have lifted the confidence of business executives and offset concerns that investors might otherwise have had about the effects of Fed rate increases. Yet for the same reason, some caution that if Trump’s program fails to survive Congress intact, concerns will arise that the president’s plans won’t deliver much economic punch. Investors may start to fret about how steadily higher Fed rates will raise the cost of borrowing and slow spending by consumers and businesses.
The lone member of the Federal Open Market Committee to vote against the rate change was Minnesota Fed president and former California gubernatorial candidate Neel Kashkari, who ran as a Republican.
More here.
