Update | US Fed increases interest rate by 25 bp as era of cheap money ends
The central bank’s statement suggests that three further rises should be expected in 2017; Yellen says US economy ‘remarkably resilient’
The US Federal Reserve raised benchmark interest rates for the first time in 12 months, ending an era of cheap money as the world’s largest economy heads into the new year led by a president-elect whose policies are likely to have far-reaching effects.
In a widely anticipated and much-delayed move, the US central bank’s policy-setting committee announced that the benchmark interest rate would rise by 25 basis points, boosting federal fund rates to a target range of between 0.5 and 0.75 per cent, up from 0.25 to 0.5 per cent since December 2015.
“This is a very modest adjustment in the path of the federal funds rate,” Fed Chair Janet Yellen told reporters in a briefing after the decision on interest rates was released.
The move “should certainly be understood as a reflection of the confidence we have in the progress that the economy has made and our judgment that that progress will continue,” Yellen said. “And the economy has proven to be remarkably resilient, so it is a vote of confidence in the economy.”
The Fed’s new projections have the unemployment rate dipping to 4.5 per cent by the end of 2017 and remaining at that level in 2018. It foresees economic growth reaching 1.9 per cent this year and 2.1 per cent in 2017. That’s slightly more optimistic than the Fed projected in September.
As many as three rate increases are likely in 2017, the Fed said. That compares with market anticipation of between two to five further moves in the next year.