The U.S. Federal Reserve on Wednesday raised interest rates for the second time in three months, citing the strong labor market and rising inflation, and set the stage for at least two more rate hikes this year.
The Fed’s Open Market Committee voted 9 to 1 to increase the rate 0.25 percentage points to a target between 0.75% and 1%, with only Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, dissenting because he preferred to keep the rate steady.
The rate hike had been expected with unemployment rate falling to 4.7% in February and the Fed’s core inflation measure — the price index for personal consumption expenditures — nearing its target of 2% as oil prices rise.
The increase “reflects the economy’s continued progress toward the employment and price stability objectives assigned to us by law,” Fed Chair Janet Yellen said in a statement. “For some time the committee has judged that, if economic conditions evolved as anticipated, gradual increases in the federal funds rate would likely be appropriate to achieve and maintain our objectives.”
“Today’s decision is in line with that view and does not represent a reassessment of the economic outlook or of the appropriate course for monetary policy,” she added.
The Fed raised rates in December 2015 for the first time since the financial crisis and then waited a full year before the second hike. It now appears to have an appetite for keeping up an accelerated pace of increases that could bring the federal funds rate to 2.1% by the end of 2018 — still historically low but a level not reached since early 2008.
“The committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate,” the central bank said, adding that it expected overall inflation stabilize around 2% over the next couple of years, in line with its longer-run objective.
According to The New York Times, “An increased number of Fed officials are expecting to raise rates at least twice more this year. Only three of the 17 officials who submitted forecasts [at this week’s FOMC meeting] now expect the central bank to move more slowly.”