Federal Funds Rate Increases by 0.25%

The Federal Reserve’s Federal Open Market Committee (FOMC) raised the key interest rate by 0.25% point, increasing the Fed’s target for short-term interest rates to a range of 0.75%-1.0%. The increase of the federal funds rate is the third since the financial crisis.

FOMC is forecasting the economy to grow by 2.1% in 2017-2018, and 1.9% in 2019. Unemployment is forecast to average 4.5% over the next two years, with inflation anticipated at 1.9% in 2017, and 2.0% in 2018-2019. “These are little changed from those forecasts made in December,” said Federal Reserve Chair Janet Yellen in a press conference.

Yellen indicated that the continuing economic expansion supported the decision to raise the rate, with business sentiment at favorable levels (despite soft business investment levels in 2016), and steady job growth. “We continue to expect the economy to expand moderately over the next several years,” she commented. As such, she added, moderate, gradual increases in the federal funds rate would be appropriate, while “monetary policy remains accommodative,” she noted.

Yellen also indicated she is not expecting huge shocks to the economy in the near term, though acknowledged the FOMC is taking a wait-and-see stance concerning fiscal policy.

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