Fed’s Fall­ing Rate Ex­pec­ta­tions

Daily Freeman (Kingston, NY) - - BUSINESS -

To fight the worst re­ces­sion in seven decades, the Fed­eral Re­serve re­duced its key in­ter­est rate, called the fed­eral funds rate, to a record low of 0 to 0.25 per­cent in De­cem­ber 2008. It left the rate there for the next seven years. The fed­eral funds rate sets the cost of overnight bor­row­ing by banks and helps de­ter­mine the in­ter­est that banks charge on their busi­ness and con­sumer loans.

The Fed nudged it up by a quar­ter-point to a range of 0.25 per­cent to 0.5 per­cent last De­cem­ber. Since then, how­ever, it has left the rate alone and trimmed its ex­pec­ta­tions for the pace of fu­ture rate hikes. It now projects just one hike this year.

It has also been re­duc­ing its pro­jec­tion for the longer-run “neu­tral” level for this key rate. This is im­por­tant be­cause it means that the Fed now be­lieves it will not have to raise rates as high as it once did to keep the econ­omy from over­heat­ing. That will keep fu­ture bor­row­ing costs lower.

Here is a look at the re­cent his­tory for the funds rate and the changes the cen­tral bank has made in its pro­jec­tions for the longer-run level of the rate.

Source: Fed­eral Re­serve

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