The Federal Reserve today announced the first interest rate hike since 2006, with Fed chairwoman Janet Yellen saying the uptick “recognizes the considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans.”
The target range for the federal funds rate is being raised by one-quarter percentage point, bringing it to one-quarter to one-half percent.
“This action marks the end of an extraordinary seven-year period during which the federal reserve funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression,” Yellen told reporters at a press conference, adding that the hike “reflects the committee’s confidence that the economy will continue to strengthen.”
“The economic recovery has clearly come a long way, although it is not yet complete,” she said. “Room for further improvement in the labor market remains and inflation continues to run below our longer run objective. But with the economy performing well and expected to continue to do so, the committee judged that a modest increase in the federal funds rate target is now appropriate. Recognizing that even after this increase, monetary policy remains accommodative.”
Asked why the Fed waited so long to raise interest rates, Yellen replied, “We decided to move at this time because we feel the conditions that we set out for — for a move — namely, further improvement in the labor market and reasonable confidence that inflation would move back to 2 percent over the medium term — we felt that these conditions had been satisfied.”
“We have been concerned, as you know, about the risks from the global economy. And those risks persist. But the U.S. economy has shown considerable strength. Domestic spending that accounts for 85 percent of aggregate spending in the U.S. economy has continued to hold up. It’s grown at a solid pace,” she said.
“…What we would like to avoid is a situation where we have waited so long that we’re forced to tighten policy abruptly, which risks aborting what I would like to see as a very long-running and sustainable expansion.”
White House press secretary Josh Earnest told reporters today that it’s not a matter of whether President Obama feels it’s time to hike interest rates, but “whether the board of the Federal Reserve feels that it is appropriate to make that decision.”
“And given our longstanding respect for the independence of that — of that agency, you know, we’ve — we’ll decline to provide any color commentary about decisions that they may or may not be attending to make,” Earnest added.