As was widely expected, the United States Federal Reserve (the Fed) raised interest rates on Wednesday – thereby ending a seven-year period during which government intervention held the benchmark federal-funds rate near zero.
The Fed stated that America’s economic activity was “expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further.”
Given this outlook and “recognizing the time it takes for policy actions to affect future economic outcomes,” the Fed chose to increase the target range for the federal funds rate a quarter point.
The central bank indicated that more increases would come “with gradual adjustments in the stance of monetary policy.”
Fed chairperson Janet Yellen said at a press conference Wednesday that, “This action marks the end of an extraordinary seven-year period during which the federal funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression.”
She pointed out that although the economy “has come a long way,” normalization “is likely to proceed gradually” and that “inflation continues to run below our longer-run objective.”
The United States has added new jobs every month since October 2010 and over the past 12 months, it has added an average of 237,000 jobs per month.
Many analysts and politicians are troubled by the Fed’s move, pointing to the still-significant signs of weakness in the job market. For example, the numbers of people simply no longer searching for work are at an all-time high.
Democratic presidential hopeful Bernie Sanders called the move “bad news for working families.”
In a blogpost, Sanders wrote that, “At a time when real unemployment is nearly 10% and youth unemployment is off the charts, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people. The Fed should act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks seven years ago.”
Most of the initial conclusions following the announcement focused on the positive stock market reaction. The S&P ended the day with huge gains and other markets fared very well.