The Federal Reserve is raising interest rates from record lows set at the depths of the 2008 financial crisis, a shift that heralds modestly higher rates on some loans.
The Fed coupled its first rate hike in nine years with a signal that further increases will likely be made slowly as the economy strengthens further and inflation rises from undesirably low levels.
The central bank said in a statement after its latest meeting that it was lifting its key rate by a quarter-point to a range of 0.25 percent to 0.5 percent. Its move ends an extraordinary seven-year period of near-zero borrowing rates. But the Fed’s statement suggested that rates would remain historically low well into the future, saying it expects “only gradual increases.”
“The Fed reaffirmed that the pace of rate hikes would be slow,” James Marple, senior economist at TD Economics wrote in a research note. “The Fed’s expectations for rate hikes next year are set alongside a relatively cautious and entirely achievable economic outlook.”
Federal Reserve Chair Janet Yellen speaks during a news conference in Washington, Wednesday, Dec. 16, 2015, following an announcement that the Federal Reserve raised its key interest rate by quarter-point, heralding higher lending rates in an economy much sturdier than the one the Fed helped rescue in 2008. (AP Photo/Susan Walsh)
Federal Reserve Chair Janet Yellen speaks during a news conference in Washington, Wednesday, Dec. 16, 2015, following an announcement that the Federal Reserve raised its key interest rate by quarter-point, heralding higher lending rates in an economy much sturdier than the one the Fed helped rescue in 2008. (AP Photo/Susan Walsh)
Wednesday’s action conveys the central bank’s belief that the economy has finally regained enough strength 6½ years after the Great Recession ended to withstand modestly higher borrowing rates.
“The Fed’s decision today reflects our confidence in the U.S. economy,” Chair Janet Yellen said at a news conference.
Stocks closed up sharply higher. The Dow Jones industrial average, which had been up modestly before the announcement, gained 224 points, or 1.3 percent, for the day.
The bond market didn’t react much. The yield on the 10-year Treasury note rose slightly to 2.29 percent.
Rates on mortgages and car loans (continue reading at WKRN)