Fed raises key rate, sees 3 hikes in ’17

WASHINGTON — The Federal Reserve has raised a key interest rate in response to a strengthening U.S. economy and expectations of higher inflation, and it foresees three more rate hikes in 2017.

The Fed’s move will mean modestly higher rates on some loans.

Wednesday’s action signaled the Fed’s belief that the economy has improved over the past year after a rough start to 2016 and can withstand slightly higher borrowing rates. Its expectation of three rate increases in 2017 is up from two from its forecast three months ago.

The central bank said in a statement after its latest policy meeting that it’s raising its benchmark rate by a quarter point to a still-low range of 0.5 percent to 0.75 percent. The Fed had most recently raised the rate last December from a record low near zero set during the 2008 financial crisis.

Responding to a question at a news conference, Chair Janet Yellen said she didn’t think the economy needed stimulus from Presidentelect Donald Trump’s proposed tax cuts and infrastructure spending — the kind of fiscal support that Yellen and her predecessor, Ben Bernanke, had called for in the past.

The Fed’s move Wednesday, only the second rate hike in the past decade, came on a unanimous 10-0 vote.

Wednesday’s rate increase should have little effect on mortgages or auto and student loans. The central bank doesn’t directly affect those rates, at least not in the short run. But rates on some other loans — notably credit cards, home equity loans and adjustable-rate mortgages — will likely rise soon, though only modestly.

“This single quarter-point move in interest rates will go largely unnoticed at the household level, but coupled with last year’s hike, the cumulative effect could mount quickly if the Fed quickens the pace of rate hikes in 2017,” said Greg McBride, Bankrate.com’s chief financial analyst.