The era of zero-interest rates finally comes to a close
The Federal Reserve’s interest-rate setting committee will raise interest rates by 25 from near zero, the central bank announced in a statement on Wednesday.
The Federal Open Market Committee (FOMC) decided that the U.S. economy and labor market are healthy enough to start the process of normalizing interest rates, pointing to indicators like the falling unemployment rate as evidence that it can start to, at least slightly, take its foot off the monetary pedal.
The statement admitted that while inflation remains well below its 2% annual target, the FOMC remains “reasonably confident” that inflation will eventually rise to meet that goal. It’s decision to raise rates, then, was based on the fact that the FOMC recognizes “the time it takes for policy actions to affect future economic outcomes.”
In addition, the FOMC was eager to stress that the path of interest-rate increases will be only gradual. According to the statement:
The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.