Media Moves

Coverage: As expected, Fed raises interest rates

December 15, 2016

Posted by Chris Roush

Source: AP Photo/Charles Dharapak
Source: AP Photo/Charles Dharapak

The Federal Open Market Committee raised interest rates by a quarter of a percentage point on Wednesday, the first increase in a year and only the second since the great recession of last decade.

Chris Matthews of Fortune had the news:

The move was widely expected, as a falling unemployment rate and rising wages signaled to the Federal Open Market Committee (FOMC) members—the Fed’s interest rate policy-making body—and the market that overall price increases would soon meet and potentially surpass the central bank’s goal of 2% per year. Markets in particular have begun to change their minds on the topic of inflation. The election of Donald Trump has convinced many that deregulation of business and higher government deficits will lead to faster growth and rising prices.

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As the chart above shows, differences between the yields on U.S. government bonds and inflation-protected bonds indicate that investors believe higher inflation will soon be on the way. That said, inflation expectations remain well below historical norms, and even below levels seen a few years ago when the economy was weaker. This reinforces the Fed’s slow approach to further increases. “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the Fed’s statement reads. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

The decision to raise rates was unanimous, indicating that Janet Yellen has been successful in satisfying both FOMC members who want rates to go up faster to blunt inflation and those who believe interest rates should be kept low to nurse the convalescent economy.

Binyamin Appelbaum of the New York Times reported that one Republican criticized the move:

Already on Wednesday, one Republican member of the House Financial Services Committee, Representative Roger Williams of Texas, criticized the Fed’s move.

“Today’s decision by the Fed to raise the interest rate is entirely premature and will be burdensome to a nation already struggling to pull itself out of this slow-growth Obama economy,” Mr. Williams said in a statement. “By making rates even higher, the Fed is effectively making our hardships even harder.”

Mr. Williams did not object when the Fed raised rates last December.

In announcing the decision after a two-day meeting of the Fed’s policy-making committee, the central bank gave little indication that Mr. Trump’s election had altered its economic outlook. The Fed said it still expected a slow economic expansion and a steady march toward higher rates. In separate forecasts also published Wednesday, Fed officials predicted three rate increases in 2017.

Bess Levin of Vanity Fair noted that Fed chair Janet Yellen took a swipe at president-elect Donald Trump:

Yellen, who remained unnervingly calm—a prerequisite for a central banker—throughout Trump’s attacks on the campaign trail, used her first post-election press conference to throw some shade the incoming president’s way:

For a regular person, that’s a minor dig. For a chairman of the Federal Reserve, it’s basically smashing a beer bottle over a bar stool and asking, “You want some-a this?” Considering many fear that Trump will try to bend the independent Fed to his will, à la Richard Nixon, she may or may not be trying to send a message that little men with big Twitter feeds don’t scare her. Asked if there was any scenario under which she could see herself stepping down, Yellen clapped back at the unspoken premise. “I do intend to serve out my four-year term,” she said. “I might or might not be reappointed.”

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