Federal Reserve Raises Interest Rates
The Federal Open Market Committee decided to increase the target range for the federal funds rate by 0.25 percentage point.
Following the decision, the target range moved from 3.50%-3.75% to 3.75%-4.00%.
The Federal Reserve said the decision was made in light of economic activity, employment conditions, inflation developments and financial conditions.
Inflation Remains a Key Concern
The Federal Reserve said inflation remains somewhat elevated.
The central bank continues to seek maximum employment and inflation at a rate of 2% over the longer run.
The latest decision indicates that inflation remains an important consideration for monetary policy as officials assess whether price pressures are moving sustainably toward the Fed’s longer-term objective.
What the Rate Hike Means
A higher federal funds rate can influence borrowing costs across the wider economy.
Changes in the federal funds rate can affect short-term interest rates, credit conditions and financial markets. Borrowing costs for businesses and households can also be influenced by movements in broader interest rates.
The effects are not immediate or identical across all parts of the economy, and financial markets also respond to expectations about future monetary policy.
Financial Markets Watch the Fed
Investors closely follow Federal Reserve decisions because U.S. interest rates can affect stocks, bonds, currencies and other financial assets.
Higher interest rates can change the relative attractiveness of different investments and influence expectations for corporate earnings and economic growth.
The Fed’s assessment of inflation and economic activity can therefore be important for markets beyond the United States.
Fed Continues to Monitor Economic Risks
The Federal Open Market Committee said economic activity has continued to expand at a solid pace.
It also noted that job gains have remained low and that the unemployment rate has been little changed in recent months.
The committee said uncertainty about the economic outlook remains elevated and that it will continue to assess incoming information.
What Happens Next?
The Federal Reserve's future decisions will depend on incoming economic data and its assessment of inflation, employment and broader economic conditions.
The central bank has indicated that it will continue evaluating the implications of new information for monetary policy.
For financial markets, attention will remain focused on inflation data, employment figures and signals from Federal Reserve officials about the future path of interest rates.