Fed raises interest rate amid strong labor market
WASHINGTON: The US central bank on Wednesday raised the benchmark interest rate for the third and final time this year, and indicated it was not likely to be more aggressive next year, at least for now.
Citing the strong labor market and solid economy, the Fed’s policy-setting Federal Open Market Committee increased the key lending rate to 1.25-1.5 percent, an increase of a quarter point on the cost of loans for everything from houses to cars.
The quarterly forecasts by Fed officials showed no change in the expectations for policy moves in 2018 and 2019, with three rate hikes expected next year and one in the following year, identical to their September projections, indicating they are no more concerned about rising prices.
Fed Chair Janet Yellen said the decision was prompted by the continued strong labor market, even while officials expect job gains to slow somewhat.
“Allowing the labor market to overheat would raise the risk that monetary policy would need to tighten abruptly at a later stage, jeopardizing the economic expansion,” Yellen said at a press conference following the two-day meeting.
However, there remains some disagreement among policymakers about the need to raise rates since there are few signs that inflation is accelerating even with very low unemployment.
Two Fed officials voted against the rate increase, the first time there was more than one dissenter since November 2016. The Federal Reserve Bank president from Chicago, Charles Evans, and Minneapolis, Neel Kashkari, wanted the committee to hold off.
Yellen again acknowledged the uncertainty about prices, saying “our understanding of the forces driving inflation is imperfect,” but the committee expects the rate to move up to the Fed’s two percent target “over the next couple of years.”
The Fed’s rate move was widely expected, and there were few changes in the wording of the statement or the economic forecasts for economists to focus on.
The FOMC said it continues to expect the economy to “expand at a moderate pace,” which will require only gradual changes in monetary policy.
“Hurricane-related disruptions and rebuilding have affected economic activity, employment, and inflation in recent months but have not materially altered the outlook for the national economy,” the FOMC said.