- Janet Yellen, Fed Chairwoman
After seven years of maintaining the federal funds rate near zero, the Fed announced its first rate hike in almost a decade, signalling its growing confidence in the world's number one economy. The Fed raised its target for the federal funds rate, the rate at which banks lend money to one another, from 0% to 0.25%. The modest increase is unlikely to have a significant impact on the American economy. Yet, the move is extremely important, as it is widely seen as the first step in a longer sequence of rate hikes over the next couple of years. By the end of next year, the US central bank expects the benchmark interest rate to climb to a median 1.375%, which implies four more 25 basis points increases over the coming 12 months. In 2017, officials are aiming to bring the policy rate up to 2.375%, which will take another four hikes.
The Fed noted the world's biggest economy is growing solidly and should pick up its pace to a respectable 2.4%. Nonetheless, prominent economists argue that the US economy is still vulnerable to slower global growth and criticized the Fed's decision, particularly as there was no compelling reason like increasing inflation and a tight jobs market to justify it. However, the Fed's support for the decision was unanimous. Policy makers noted considerable improvement in the labour market and said they were "reasonably confident" in inflation climbing over the medium term to its 2% target.
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