WASHINGTON — Interest rates are going up.
The Federal Reserve raised its key interest rate by 0.25 percentage point on Wednesday. It was just the third time the Fed has increased rates since the financial crisis.
That raises the Fed’s target for short-term interest rates to a range of 0.75 percent and 1 percent.
The move was widely expected after last week’s strong jobs report and Fed Chairwoman Janet Yellen’s comments that a rate hike was “appropriate.”
A rate hike is a sign the Fed is confident about the pace of growth in the U.S. economy.
The Fed placed its key interest rate at 0 percent in December 2008 to resuscitate the collapsed housing market.
But a little more than eight years later, the U.S. economy is in much better shape and has grown, albeit slowly, since late 2009.
“Economic activity has continued to expand at a moderate pace. Job gains remained solid,” the Fed said in a statement.
Yellen and other Fed leaders raised rates only one time each in 2015 and 2016, but on Wednesday, they reaffirmed their commitment to raising rates faster this year.
Fed officials project they will raise rates two more times in 2017, though it all depends on how the economy performs.
The rate increase is a signal the U.S. economy no longer needs as much help from the Fed and consumers and businesses can afford to pay more to borrow.
America has added jobs for 77 consecutive months and the country’s unemployment rate has fallen to 4.7 percent. The U.S. economy has expanded for more than seven years, even though the pace of growth has been slow.
It’s a vast improvement from 2009, when the unemployment rate peaked at 10 percent.
A major uncertainty for the Fed is President Donald Trump’s policies on taxes, deregulation and trade.
While experts caution that the policies won’t take effect until 2018, the Fed must pay attention to how financial markets perform in response to news about the policies.
Trump’s potential reforms have already caused U.S. stock markets to rise to all-time highs.
Expectations have triggered a significant increase in business and consumer confidence. But so far, the big boost in confidence hasn’t translated to real spending.
On Wednesday, the Census Bureau announced that U.S. retail sales — a leading indicator of economic growth — only rose 0.1 percent in February, compared to January.
The Fed faces another major uncertainty this year: Its own leadership.
Three of its governorships will be open by April and Yellen’s term as Fed chair ends in January.
Trump will have the opportunity to appoint to all of those positions. He was highly critical of Yellen during his campaign.
However, Treasury Secretary Steven Mnuchin, a Trump appointee, has spoken kindly of Yellen and Fed leaders since he took office.AlertMe