Fed Announces First Interest Rate Hike In Almost A Decade
On Wednesday, the Federal Reserve announced that it would raise interest rates for the first time since 2006. The Fed’s Federal Open Market Committee decided to raise the target range for the federal funds rate by .25 percentage points, bringing the range to .25 to .5 percent. The increase in the benchmark rate comes in response to the country’s continued economic recovery following the Great Recession.
“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,” said Fed Chair Janet Yellen in a prepared statement. “It also recognizes the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans. And it reflects the committee’s confidence that the economy will continue to strengthen. The economic recovery has clearly come a long way, although it is not yet complete. Room for further improvement in the labor market remains, and inflation continues to run below our longer-run objective. But with the economy performing well and expected to continue to do so, the committee judged that a modest increase in the federal funds rate target is now appropriate, recognizing that even after this increase, monetary policy remains accommodative.”
Marc Simon, CEO of HALO Branded Solutions, adds, “Much as the investing world reacted with relief to the Fed’s modest rate increase yesterday, our industry should react with similar relief. Doubt and uncertainty is always an inhibitor of investment and growth, and the doubt and uncertainty that hung in the air seems to be somewhat dissipated. Coupled with the budget deal Speaker Ryan also announced this week, modest as it is, perhaps we can all feel a little more encouraged that the pace of business will continue to improve. If it does, our industry is likely to be an early harbinger of renewed economic activity.”
In pursuit of its objectives of maximum employment and two percent inflation in the long-term, the committee says that it will assess economic conditions in determining the timing and size of future adjustments to the target range for the federal funds rate. However, it predicts the process to be slow and that economic conditions will evolve in a manner that warrant only gradual increases in the federal funds rate. For the time being, the federal funds rate will likely remain below the levels expected to prevail in the longer run.