Economy Watch: Interest Rates Rise, So Does Inflation

Unsurprisingly, the Federal Open Market Committee decided to raise interest rates again in March, signaling its optimism about the direction of the U.S. economy.
Janet Yellen, Chair of the Board of Governors of the Federal Reserve System
Janet Yellen, Chair of the Board of Governors of the Federal Reserve System

As expected, the Federal Open Market Committee raised the federal funds rate by a quarter of a point on Wednesday,  to 0.75 percent to 1 percent. The Fed’s statement noted that “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.”

That is, the central bankers aren’t overly worried about the U.S. economy right now. “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate,” the statement said, but not too fast. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

Separately, the Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index increased 0.1 percent in February. Over the last 12 months, the index rose 2.7 percent, which reflects more annual inflation than in previous years, even though the monthly rise was the smallest in over a year.

The index for all items less food and energy rose 0.2 percent in February. Prices for shelter, recreation, apparel, airline fares, motor vehicle insurance, education and medical care were among those that increased during the month. Prices that declined include communication, used cars and trucks, new vehicles, and household furnishings and operations.