The Federal Reserve announced today that it would raise interest rates by 25 basis points, bringing the target range for the federal funds rate to 0.75% to 1%. This decision reflects the Committee’s view that the labor market has continued to strengthen and that inflation is moving closer to the Fed’s 2 percent objective.
Economic Outlook
The Fed noted that economic activity has continued to expand at a moderate pace. Job gains have been solid, on average, in recent months, and the unemployment rate has remained stable. Household spending has continued to rise, supported by rising incomes and consumer confidence. Business investment has also shown signs of improvement.
Inflation
Inflation has increased in recent quarters and is now close to the Fed’s 2 percent target. The Fed expects inflation to remain near this level over the medium term. However, the Committee will continue to monitor inflation developments closely.
Future Rate Hikes
The Fed expects that further gradual increases in the federal funds rate will be appropriate to maintain sustainable economic growth and price stability. The timing and size of future rate hikes will depend on the evolution of the economic outlook and the risks surrounding that outlook.
Market Reaction
The stock market reacted positively to the Fed’s announcement, with the Dow Jones Industrial Average rising sharply. Bond yields also increased, reflecting expectations of higher interest rates in the future.
Key Takeaways:
- Interest rates raised by 25 basis points.
- Economic activity expanding at a moderate pace.
- Inflation near the Fed’s 2 percent target.
- Further gradual rate hikes expected.
