The Federal Reserve
Yellen, in last briefing as chair, says economy is ‘performing well’
lifts its key interest rate by a quarter point, an expected move that the central bank said is happening because America’s economy is improving.
WASHINGTON — The Federal Reserve lifted its benchmark interest rate 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 later in the afternoon during 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 early February, noted that she was working toward a smooth transition for her successor. President Donald Trump selected Jerome “Jay” Powell, a Fed governor who helps decide interest rates, to replace Yellen.
Asked whether the Fed policymakers had considered Trump’s massive taxcut 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. “My colleagues sand I are in line with the general expectation among most economists that the type of tax changes that are likely to be enacted would tend to provide some modest lift to GDP growth in the coming years,” Yellen said.
Stocks were slightly up on the Fed news Wednesday afternoon, but the three major indexes did not reach their earlier highs for the day.
The one regret Yellen has about her tenure is that inflation has remained too low, she said. The Fed projects inflation to finish the year at 1.7 percent. “I want to see it move up to 2 percent,” she said. “There’s work undone there.”
Yellen also addressed the persistently 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.
The stock market was sitting at record highs as the Fed made its announcement. Nearly everyone expected the Fed to raise the rate. Most Wall Street investors and economists were paying close attention to the Fed’s economic forecasts for next year. With Trump’s tax plan looking increasingly likely to pass Congress, growth is expected to pick up even more, putting pressure on the central bank to raise rates faster. But the Fed still expects only three rate increases next year. The central bank is also continuing with its spelled-out plan to trim its balance sheet slightly in 2018.
So far, the rate hikes have not caused any noticeable pain in the economy or markets. But WalletHub analyst Jill Gonzalez warned that people with a lot of credit card debt will start to feel pinched as rates go up.