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The Fed raises interest rates and says more hikes are on the way

March 16,2017 02:20

"If the Fed is raising rates into a stronger environment, the stronger environment is far more important than rates going up 25 basis points," said Jamie Dimon, the CEO of JPMorgan, during Business Roundtable's media briefing on Tuesday. For the Fed ...



Federal
Reserve Board Chair Janet Yellen.
Andrew Harnik/AP

The Federal Reserve announced Wednesday that it had raised its
benchmark interest rate after a two-day policy meeting, as had
widely been expected.

The Federal Open Market Committee projected two
more rate hikes this year, unchanged from its prior estimate
of three in 2017. Only one member of the FOMC — the Minneapolis
Fed's Neel Kashkari — voted against a rate hike.

The FOMC raised the benchmark federal funds rate 25 basis points,
to a range of 0.75% to 1%, marking its third increase since the
Great Recession. This hike will eventually trickle down to

increase borrowing costs for short-term loans and credit
cards.

"Unlike the first two rate hikes where there were 12 months in
between, here we are just three months later, and the Fed's
raising rates again," said Greg McBride, the chief financial
analyst at Bankrate.com.

Credit-card owners and people with home-equity lines of credit
can expect to see an increase in rates within 60 days, he told
Business Insider.

One month ago, market participants believed the Fed would skip
the March meeting and perhaps go in June. However, several
officials, including Fed Board Chair Janet Yellen, made comments
that gradually
convinced markets that the Fed was ready.

The Fed's raising rates is further acknowledgment that job gains
remain "solid" and inflation should rise to its 2% target,

its statement said.

On Friday, the better-than-forecast
February jobs report showed a rebound in wages and
manufacturing-sector investment, cementing market expectations
for a rate hike.

The Fed also had its eye on financial markets. From the election
through Wednesday's statement, the benchmark S&P 500 index
gained 11%, as investors anticipated that President Donald
Trump's agenda would stimulate business growth.

The relative calmness in markets likely factored into the Fed's
belief that another interest rate increase was appropriate.

"If the Fed is raising rates into a stronger environment, the
stronger environment is far more important than rates going up 25
basis points," said Jamie Dimon, the CEO of JPMorgan, during
Business Roundtable's media briefing on Tuesday. For the Fed,
"the 'why' is more important than the 'what,'" he said.

Here's the
full Fed statement:

"Information received since the Federal Open Market Committee met
in February indicates that the labor market has continued to
strengthen and that economic activity has continued to expand at
a moderate pace. Job gains remained solid and the unemployment
rate was little changed in recent months. Household spending has
continued to rise moderately while business fixed investment
appears to have firmed somewhat. Inflation has increased in
recent quarters, moving close to the Committee's 2 percent
longer-run objective; excluding energy and food prices, inflation
was little changed and continued to run somewhat below 2 percent.
Market-based measures of inflation compensation remain low;
survey-based measures of longer-term inflation expectations are
little changed, on balance.

"Consistent with its statutory mandate, the Committee seeks to
foster maximum employment and price stability. The Committee
expects that, with gradual adjustments in the stance of monetary
policy, economic activity will expand at a moderate pace, labor
market conditions will strengthen somewhat further, and inflation
will stabilize around 2 percent over the medium term. Near-term
risks to the economic outlook appear roughly balanced. The
Committee continues to closely monitor inflation indicators and
global economic and financial developments.

"In view of realized and expected labor market conditions and
inflation, the Committee decided to raise the target range for
the federal funds rate to 3/4 to 1 percent. The stance of
monetary policy remains accommodative, thereby supporting some
further strengthening in labor market conditions and a sustained
return to 2 percent inflation.

"In determining the timing and size of future adjustments to the
target range for the federal funds rate, the Committee will
assess realized and expected economic conditions relative to its
objectives of maximum employment and 2 percent inflation. This
assessment will take into account a wide range of information,
including measures of labor market conditions, indicators of
inflation pressures and inflation expectations, and readings on
financial and international developments. The Committee will
carefully monitor actual and expected inflation developments
relative to its symmetric inflation goal. The Committee expects
that economic conditions will evolve in a manner that will
warrant gradual increases in the federal funds rate; the federal
funds rate is likely to remain, for some time, below levels that
are expected to prevail in the longer run. However, the actual
path of the federal funds rate will depend on the economic
outlook as informed by incoming data.

"The Committee is maintaining its existing policy of reinvesting
principal payments from its holdings of agency debt and agency
mortgage-backed securities in agency mortgage-backed securities
and of rolling over maturing Treasury securities at auction, and
it anticipates doing so until normalization of the level of the
federal funds rate is well under way. This policy, by keeping the
Committee's holdings of longer-term securities at sizable levels,
should help maintain accommodative financial conditions.

"Voting for the FOMC monetary policy action were: Janet L.
Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard;
Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S.
Kaplan; Jerome H. Powell; and Daniel K. Tarullo. Voting against
the action was Neel Kashkari, who preferred at this meeting to
maintain the existing target range for the federal funds rate."

More to come ...

SEE ALSO: Here's how the Fed raises interest rates

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