Fed’s move shows confidence in economy
WASHINGTON — The Federal Reserve lifted its benchmark interest rate on Wednesday by a quarter point to a range of 1.25 to 1.5 percent, a widely expected move that the central bank said is happening because America’s economy continues to improve. This is the fifth rate increase since the bank cut the rate to nearly zero during the financial crisis of 2008.
The Fed cast the decision as a positive signal that the U.S. economy is healthy.
“The labor market has continued to strengthen” and “economic activity has been rising at a solid rate,” the Fed said in a statement.
Unemployment is now at the lowest level since 2000, growth is picking up and inflation remains tame. The Fed bumped up its expectations for growth this year and next. The economy is on track to expand 2.5 percent this year and next year, the Fed now says. It’s previous estimate was 2.1 percent expansion in 2018. Unemployment is expected to fall even further to below 4 percent in 2018.
“At the moment, the U.S. economy is performing well,” Fed Chair Janet Yellen said in her final Fed news conference. “There’s less to lose sleep about now than has been true for quite some time.”
Yellen, who is stepping down in February, noted she was working toward a smooth transition. President Donald Trump selected Jerome Powell, a Fed governor who helps decide interest rates, to replace Yellen. “I am confident that (Powell) is as deeply committed as I have been to the Federal Reserve’s vital public mission,” she said.
Asked whether the Fed policymakers had considered Trump’s tax-cut proposal during its policy meeting, Yellen said they had. “While changes in tax policy will likely provide some lift to economy policy in the coming year,” she said, “the marco-economic effects remain uncertain.”
Yellen said that Fed governors expect a “modest” increase in growth from the tax plan that the Republican-controlled Congress is finalizing
Yellen addressed the sluggish pace of wage growth even as the unemployment rate has dropped far below what it was when she became chair nearly four years ago. While the Fed anticipates wages are likely to rise faster next year, Yellen said, it would be mainly because unemployment is low and businesses are having trouble finding workers, not because of the tax plan.
At one point, Yellen — the first woman to lead the Federal Reserve — was asked if she had any advice or thoughts for women and minorities who see her as a role model. She said that she and her colleagues “would love to” bring in more women and minorities at the bank, “if we could increase our hiring.” And she lamented that the number of women and minorities pursuing the field of economics is “disproportionately and disturbingly low.”
“I think economics is a terrific field,” Yellen added.