After hike, Fed eyeing asset sheet

WASHINGTON — The Federal Reserve has raised its key interest rate for the third time in six months, providing its latest vote of confidence in a slow-growing but durable economy. The Fed also announced plans to start paring its bond holdings later this year, which could cause long-term rates to rise.

The increase in the Fed’s shortterm rate by a quarter-point to a still-low range of 1 percent to 1.25 percent could lead to higher borrowing costs for consumers and businesses and slightly better returns for savers. The Fed foresees one additional rate hike this year but gave no hint of when that might occur.

The message the Fed sent Wednesday was an upbeat one: It believes the U.S. economy is on firm footing as it enters its ninth year of recovery

FED

from the Great Recession, with little risk of a recession. Though the economy is growing only sluggishly and though inflation remains chronically below the Fed’s 2 percent target, it foresees improvement in both measures over time.

And the most important pillar of the economy — the job market — remains solid if slowing, with employment at a 16-year-low of 4.3 percent — even below the level the Fed associates with full employment.

The Fed’s decision to raise rates, announced in a statement after its latest policy meeting, was approved 8-1, with Neel Kashkari, head of the Fed’s Minneapolis regional bank, dissenting in favor of holding rates unchanged.

UNLV Lee Business School Chairman and professor Jeff Waddoups said the Fed should pay more attention to the ratio of employed workers ages 25 to 54, which is still lower than the pre-recession rate, and the slow growth of wages.

Those two indicators might suggest the economy is not improving as fast as the Fed has broadcasted, Waddoups said.

“The standard unemployment rate is getting pretty low, but it’s not capturing the slack out there,” he said.

The announcement that the Fed plans to start paring its balance sheet later this year — “provided that the economy evolves broadly as anticipated” — involves its enormous portfolio of Treasury and mortgage bonds. The Fed began buying the bonds after the Great Recession to try to depress long-term loan rates. That effort resulted in a five-fold increase in its portfolio to $4.5 trillion.

Review-journal writer Wade Tyler Millward contributed to this report.