Economy Watch: Fed Raises Interest Rates for the First Time in 2016

The FOMC raised the federal funds rate for only the second time in two decades, citing an improved U.S. economy that will likely continue its moderate growth.
Janet_Yellen_official_Federal_Reserve_portrait

Janet Yellen

In a widely anticipated move, the Federal Open Market Committee voted to raise the federal funds rate to 1/2 to 3/4 percent, citing improved U.S. labor market conditions in particular. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation,” the committee said in its statement. The vote was unanimous.

The increase did set off speculation about how often the FOMC would raise interest rates in 2017. The committee did not go into specifics about it, with Yellen only stating that “we continue to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain our objectives.” Other observers put the number of increases variously from one to four, or even more. The latest increase marks only the second hike in the last two years.

Interest rates weren’t all Fed Chair Janet Yellen talked about at her press conference after the FOMC announcement—the first conference since the election. Among other things, she swatted down speculation that she’ll leave her position before her term is finished in early 2018. “I do intend to serve out my four-year term,” she noted. The prospects for another term after that didn’t come up.

When asked how she feels about the president-elect’s proposed plans to relax or get rid of some Dodd-Frank post-crisis financial regulation, Yellen merely said she’s thinks D.C. (including the Fed) has done a good job of insuring against a repeat of the crisis that touched off the recession, suggesting she’s not a big proponent of a rollback.

As for any contact with the incoming administration, the chair said it’s only been at the staff level, and only to help ensure a smooth transition. “I’m not trying to give advice to the incoming administration,” said Yellen, though she did at one point say that that additional fiscal stimulus probably isn’t necessary to get the economy back to full employment.