Fed raises interest rates 0.25 points

Fed raises interest rates 0.25 points
© Victoria Sarno Jordan

The Federal Reserve on Wednesday raised interest rates 0.25 points, the central bank’s first hike since December. 

Onlookers widely expected the central bank to raise rates Wednesday. Senior Fed officials, including Federal Reserve Chairwoman Janet Yellen, had hinted toward the rate hike throughout March. 

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“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said last week during a speech in Chicago. 

Bank officials said the time was right to raise rates with inflation and unemployment close to the Fed’s targets of 2 percent and roughly 4.5 percent, respectively.

The Fed is likely to raise rates two to three more times before the end of the year. Interest rates have lingered at historic lows since the recession and have only been hiked twice since 2008. 

Fed officials were hesitant to raise rates during the post-recession recovery, aiming to keep money flowing toward investment. 

With the recovery almost complete, Fed officials are looking to steer rates toward historical averages. Keeping rates too low limits the Fed’s monetary policy options when responding to economic turmoil. Yellen said Wednesday the bank wants to get rates toward a neutral stance, not steering the economy toward expansion or contraction.

“The federal funds rate does not have to rise all that much to get to a neutral stance," said Yellen.

The Fed is projecting two more rate hikes before the end of 2017. Yellen said the bank doesn't want to risk disrupting financial markets and triggering a recession by raising rates too rapidly. Even so, Yellen said federal rates will likely stay below historical averages for the immediate future.

Rep. Pat Tiberi (R-Ohio), chairman of the Joint Economic Committee, praised the rate hike as signs of a coming "period of prosperity for all."

“The Fed’s step toward more normalized rates indicates growing confidence that our economy will strengthen as the Administration and Congress follow through on our promises to lift artificial constraints on economic growth," citing GOP plans to cut regulations, replace ObamaCare and reform taxes.

But Yellen said the Fed's hasn't adjusted its economic forecast.

“We haven’t in any way changed our view about where the economy is heading.” 

--Updated at 2:45 p.m.