The U.S. Federal Reserve today announced it is raising its federal funds rate by a quarter percentage point.
With the increase, the federal funds rate, the interest rate at which banks and other financial institutions borrow from one another, is now at 0.75 to 1 percent. It influences national interest rates. The move was largely expected, with most experts predicting the Fed would raise rates several times this year. The most recent hike was in December.
In December 2015, the Fed raised interest rates for the first time since June 2006. It had been near zero since late 2008 as a result of the Great Recession.
In today’s announcement, the Federal Open Market Committee indicated a strengthened labor market and continued moderate economic growth helped solidify its decision to raise the rate.
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments,” the FOMC said in its statement.
“I believe most of this has really been priced into the markets, so I’m not sure if this came as a surprise to anyone,” said Rose Oswald Poels, president and chief executive officer of the Wisconsin Bankers Association. “But we’re definitely pleased to see the rate increase and we continue to be pleased at the gradual nature at which the Fed is raising rates because I think that promotes economic growth occurring in a stable manner.”
Oswald Poels expects another two to three rate hikes in 2017. She doesn’t see unemployment numbers or inflation targets changing in a negative way that would cause the Fed to change course.
“You’ll see deposit rates improve for savers and you could see, certainly, loan rates go up a bit as well,” Oswald Poels said. “In the near-term horizon of the next year or two, the rate increases are helpful to the health of the banking industry.”