The policy making arm of the Federal Reserve is raising the federal funds rate a quarter of a percentage point after keeping the rate near zero for seven years.
The decision to hike rates was contingent on whether improvement had been made toward the central bank’s two objectives, maximum employment and price stability, or inflation approaching its two percent objective. The central bank has kept the federal funds rate at zero since December 2008.
The Federal Open Market Committee said that it expects that "economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate" and that it "is likely to remain, for some time, below levels that are expected to prevail in the longer run."
Janet Yellen, the bank’s chair, said earlier this month that a decision to raise rates would be a sign that the economy had improved and was beginning to recover.
"When the Committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession," said Yellen. "In that sense, it is a day that I expect we are all looking forward to."
But some say that the real issue should be whether the Fed is giving our economy sustainable interest rates.
"The real question isn’t whether the Fed should be raising interest rates or lowering interest rates; it’s whether the Fed is giving our economy sustainable interest rates," said Rep. Jeb Hensarling (R., Texas). "Getting back to sustainable, market-based interest rates is better for consumers, investors and our economy overall. Unsustainably low interest rates clearly didn’t solve the problem or else Americans today wouldn’t be stuck in the slowest, worst-performing economic recovery of our lifetimes."
Published under: Federal Reserve