WASHINGTON — The Federal Reserve, on Wednesday, raised interest rates for the first time since 2006. Policy makers voted 10-0 to raise rates from near zero, where they had been for nearly seven years, to 0.25 percent.
The Fed based its decision on the belief that consumer spending and business investment were offsetting weakness in exports making the economy ready for a rate hike.
Hoping to soften the blow of the hike, the Fed said that the pace of future rate hike would be gradual. The Fed said that it will take more than “confidence” that inflation will rise to prompt more rate hikes. The U.S. inflation rate has been below to Fed’s goal of 2 percent for several years.
However, the central bank didn’t change its project of one rate hike each quarter. If that plan stays in place, the target fed-funds rate would reach a 1.4 percent rate at the end of 2016 and 2.25 percent by the end of 2017.
“Overall, taking into account domestic and international developments, the FOMC sees the risks to the outlook for both economic activity and the labor market as balanced,” the Fed statement said.
Still consumers should not expect to see an immediate effect from the rate hike on their loans or rates paid on bank accounts or CDs. It often takes months for Fed decisions to work their way down to consumers and other economic forces often dilute the effect.
The Fed emphasized that it would watch closely how long-term mortgage rates, consumer loans and other forms of credit react to a rate hike meant not to slow an economic recovery but nurse monetary policy back to a more normal footing.
The post Fed imposes first rate hike since 2006 appeared first on Central Valley Business Journal.