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Wednesday, December 14, 2016

Fed Raises Rates for First Time in 2016

The Federal Reserve Open Market Committee (FOMC) unanimously voted to raise the target range for the federal funds rate by 25 basis points to 0.50 to 0.75 percent. Today’s widely expected move marked the first change in the federal funds rate since it was increased by a quarter percentage point in December 2015.
The projected policy path for the federal funds rate was slightly more aggressive than September’s, with the Fed’s dot plot showing three rate hikes next year instead of two. Participants estimated a target rate of 1.4 percent for 2017 (a 30 basis point increase), a 2.1 percent rate for 2018 (a 20 basis point increase), and a 2.9 percent rate for 2019 (a 30 basis point increase).

In their decision to move the target rate, the Committee noted that the labor market has “continued to strengthen,” and that they are confident that inflation will rise over the medium term to its 2 percent objective.

The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. It also stressed that the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee also announced that it is maintaining its policy of reinvesting principal payments from its holdings of agency debt and mortgage-backed securities, and of rolling over maturing Treasury securities at auction, anticipating it will do so until normalization of the federal funds rate is under way.

Read the FOMC statement.
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