The Federal Reserve Board raised interest rates by a quarter of a percentage point on Wednesday, as anticipated, but left its rate outlook for the coming years unchanged.
Howard Schneider and Lindsay Dunsmuir of Reuters had the news:
The move, coming at the final policy meeting of 2017 and on the heels of a flurry of relatively bullish economic data, represented a victory for a central bank that has vowed to continue a gradual tightening of monetary policy.
Having raised its benchmark overnight lending rate three times this year, the Fed projected three more hikes in each of 2018 and 2019 before a long-run level of 2.8 percent is reached. That is unchanged from the last round of forecasts in September.
“Economic activity has been rising at a solid rate … job gains have been solid,” the Fed’s policy-setting committee said in a statement in which it announced the federal funds rate had been lifted to a target range of 1.25 percent to 1.50 percent.
U.S. stocks extended gains after the release of the policy statement, while Treasury yields dropped to session lows. The U.S. dollar fell against a basket of currencies.
Paul Davidson of USA Today reported that the decision means higher payments on credit cards and home loans:
While the impact of a single rate increase is limited, “The cumulative effect of the Fed’s interest rate hikes is mounting,” says Greg McBride, chief economist of Bankrate.com. “It’s putting a financial squeeze on household budgets at a time when income growth remains elusive.”
The central bank has raised rates five times since late 2015.
For consumers with 30-year mortgages and other longer-term loans, the effect of the Fed’s move on their pocketbooks will be far more gradual. Car buyers may be affected, too, though they’re now benefiting from a highly competitive market for auto loans that’s keeping borrowing costs low.
The Fed lifted its federal funds rate — which is what banks charge each other for overnight loans — by a quarter percentage point to a range of 1.25% to 1.5% following similar hikes in March and June. Fed officials have penciled in three more rate increases next year.
Donna Borak of CNNMoney.com reported that the Fed’s decision was buoyed by the strong economy:
Top Fed officials have been mystified about why inflation, which reflects the prices of everything from meat and cheese to houses and cars, has fallen short of the Fed’s goal of 2%. That’s what the Fed considers healthy for the economy.
In deciding to slowly raise rates over the past year or so, the Fed has weighed competing forces. Stubbornly low inflation and consumer prices suggested the Fed should hold off on raising rates. But steady economic growth and low unemployment suggested it should act.
Yellen has described inflation as something of a “mystery” but has signaled she expects it will stabilize over time.
It’s the job of central bankers to shift policy levers, nudging interest rates higher and lower, to boost jobs and keep prices, or inflation, at the optimal level. That means not too high, and not too low.
