The Atlanta Journal-Constitution
Fed raises key rate, cites strong economy
Interest rate raised for just second time since 2008 crisis.
WASHINGTON — Citing the steady growth of the U.S. economy, the Federal Reserve said Wednesday that it would increase its benchmark interest rate for just the second time since the 2008 financial crisis.
The widely expected decision moves the Fed’s benchmark rate to a range between 0.5 and 0.75 percent, still a very low level by historical standards.
In announcing the decision, which followed a twoday meeting of the Fed’s policymaking committee, the central bank gave little indication that the election of Donald Trump has altered its economic outlook. The Fed said it still expected a slow economic expansion, and it still expected to continue a slow march toward higher rates. Fed officials said they expect to raise rates three times in 2017.
“My colleagues and I are recognizing the considerable progress the economy has made,” Janet Yellen, the Fed chairwoman, said at a news conference after the announcement. “We expect the economy will continue to perform well.”
Fed officials predicted they will raise the Fed’s benchmark rate a little more quickly in the coming years, reaching 2.1 percent by the end of 2018. In September they had predicted that it would reach 1.9 percent by the end of 2018. The new projections, however, still reflected a significantly slower pace of increase than Fed officials predicted last December, when they expected the benchmark rate to reach 3.3 percent by the end of 2018.
The combination of steady growth and faster rate increases implies that Fed officials expect to offset a modest increase in fiscal stimulus.
The November elections have complicated the Fed’s outlook. Republicans will control the White House and both chambers of Congress next year, setting the stage for significant changes in fiscal policy after years of gridlock.
Trump has promised to increase economic growth through measures like tax cuts and infrastructure spending.
The Fed has said it expects to slowly increase its benchmark rate so long as the economy continues its own slowand-steady expansion. If Republicans succeed in invigorating economic growth, however, the Fed is likely to raise rates more quickly. The greater the stimulus, the faster interest rates are likely to rise.
“Your expectation should depend very little on what you think that the (Fed) is thinking and very much on your view of Trump policies and their macro effects,” said Jon Faust, an economist at Johns Hopkins University and a former adviser to Yellen.
The economy, for now, keeps plodding along. Steady job growth has reduced the unemployment rate to a level the Fed considers healthy. Yellen and other Fed officials have said they see some signs of stronger wage growth. Inflation, too, has picked up a little in recent months. Yet both wages and inflation continue to rise more slowly than the Fed wants.
Some economists argue that the Fed should wait until inflation strengthens before raising rates, to test whether a stronger economy would convince some people sidelined during the downturn to start looking for jobs. That would expand the labor force. Unemployment remains particularly high among minorities.
That view, however, has found little support among Fed officials, who worry that interest rates will have to be raised more quickly if the central bank waits too long, increasing the chances that it would end up pushing the economy into recession. How the Fed’s action may affect your pocketbook,