Fed Raises Interest Rates for Second Time in Three Months
The U.S. Federal Reserve raised interest rates for the first time in 2017 and the second time in three months. At the end of a two-day policy meeting Wednesday, the Federal Open Market Committee voted to raise the target overnight funds rate by a quarter point to a range of 0.75 percent to 1.00 percent.
News of the rate hike pushed government bond yields down while stocks climbed higher, absorbing the increase. The committee cited an improved job market, moderate economic growth and confidence in inflation remaining close to the 2 percent target for the increase.
“In view of realized and expected labor market conditions and inflation, the committee decided to raise the target range for the federal funds rate,” the Federal Open Market Committee wrote in a statement Wednesday. “Near-term risks to the economic outlook appear roughly balanced.”
Inflation has remained below the Fed’s 2 percent target for years. The personal consumption expenditures price index showed price inflation increased 1.9 percent in January from the year before.
“This seemed like a good time to remind Americans that … sometimes it (inflation) is going to be below 2 percent, sometimes it is going to above 2 percent. Two percent is not a ceiling,” Fed Chair Janet Yellen said in a news conference following the committee meeting.
Only one committee member, Minneapolis Fed President Neel Kashkari, voted against the decision. Investors were prepared for the news after Yellen indicated a likely rate hike last week at the central bank’s policy meeting. At Wednesday’s meeting the committee predicted two additional quarter-point rate increases this year.
The move will affect consumers and business owners alike as it gradually pushes up rates for home equity lines of credit, adjustable-rate mortgages and business loans. Credit card holders will see annual rates increase almost immediately, and while the impact will be small for now, the effects will be more noticeable as the Fed potentially moves rates again later this year.