US moves past 2008 with Fed's interest rate rise
Print Edition
THE Federal Reserve announced its first interest rate increase in more than nine years on Wednesday in a move indicating that the United States has finally moved beyond the 2008 crisis.
The move, which has repercussions across the global financial system, also imprinted Janet Yellen's personal stamp on US monetary policy after nearly two years as Fed chair spent plotting to reverse course from the easy-money stance bequeathed by predecessor Ben Bernanke.
The Fed raised its benchmark federal funds rate, locked near zero since the financial crisis, by a quarter point to 0.25-0.50 percent, saying the world’s biggest economy is growing solidly and should accelerate next year to a respectable 2.4 percent pace.
"This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression,” Yellen said.
"It also recognizes the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans.”
The move was widely expected and marked the end of an era in which the Fed pumped trillions of cheap dollars into the devastated US economy to fuel what turned out to be an unexpectedly long rebound.
It kicks off a likely series of rate increases which the Federal Open Market Committee, the Fed's policy board, promised would be "Gradual" and follow the pace of the economy.
FOMC projections showed they expect the rate will rise to about 1.4 percent by the end of 2016, suggesting four more increases over the next 12 months.
"The important question is how far, how fast,” said economist Edwin Truman at the Peterson Institute for International Economics.
The rate increase came amid some criticism from prominent economists that the economy was still vulnerable to slower global growth and that there was no compelling reason - such as surging inflation and a tight jobs market - to justify it.
FOMC support for the decision was unanimous. The committee pointed to "considerable" improvement in the labor market and said it is "reasonably confident" in inflation rising over the medium term to its 2 percent objective.
"The first thing that Americans should realize is that the Fed's decision today reflects our confidence in the US economy," Yellen told reporters.
"While things may be uneven across regions of the country, and different industrial sectors, we see an economy that is on a path of sustainable improvement."
Yellen predicted the challenges of ultra-low inflation and continued slack in the labor market would both diminish significantly over the coming year.
"What we would like to avoid is a situation where we have waited so long that we are forced to tighten policy abruptly, which risks aborting what I would like to see as a very long-running and sustainable expansion."
Analysts said the policy change was only modest and were focused on how the Fed will move over the next year.
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