The Federal Reserve said Wednesday it will raise its policy rate another quarter-percentage point, a widely expected increase, and bring the benchmark federal-funds rate to a range between 2 percent and 2.25 percent, marking the first time since 2008 the rate will climb above 2 percent.
The Fed has been gradually raising short-term rates since 2015. Before then, the federal-funds rate was kept virtually at zero for seven years, as the nation underwent a slow and fitful recovery after the financial crisis. But the economy and the labor market have improved significantly in the past few years, giving the central bank confidence to steadily lift short-term rates.
The latest data paints a positive economic picture. Gross domestic product has been rising quickly over the past few quarters, boosted by strong consumer spending and business investment. The buoyant economy also keeps creating jobs at a solid pace, pushing down the unemployment rate to the lowest level since 2000.
Consumer price inflation has picked up slightly and is now close to Fed’s target of 2 percent. The central bank considers this rate of inflation to be consistent with its mandate to ensure price stability. In their latest economic projections, Fed officials see the economy growing 3.1 percent this year, slightly above the 2.8 percent rate expected in June.
Fed officials removed the reference to “accommodative” policy from the post-meeting statement. However, Chairman Jerome Powell emphasized that this does not suggest any change in the likely path of interest rates.
According to the projections released after the meeting, Fed officials expect one more interest rate hike this year and at least three hikes in 2019. Rates are now projected to settle in a range between 3.25 percent and 3.5 percent by the end of 2020.
During the press conference following the meeting, Powell provided a positive assessment of the economy and underscored that at current levels of interest rates, monetary policy is still supportive of economic growth.
In answering a reporter’s question, he expressed concerns about the recent tariffs, but acknowledged that there are no signs in the data yet that the newly enacted tariffs have impacted the broader economy.
Financial markets have largely shrugged off the latest interest rate increase, with both stocks and Treasury yields inching down slightly. Wall Street’s eyes are now on December — the next time the Fed is expected to raise rates.