The U.S. Federal Reserve raised interest rates on Wednesday to further tighten monetary conditions and support the labor market.
The Federal Open Market Committee voted to increase benchmark rate by 25 basis points from 1.25 percent to 1.5 percent, the third of such move in 2017. A total of 7 members voted in support of rate hike while the remaining 2 members opposed the move.
Janet Yellen, chair of the U.S. Federal Reserve. Photographer: Scott Eisen
According to the Fed Chair, Janet Yellen, “This change highlights that the committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers and rising wages.”
While, this move suggests the Fed is confidence about the economy going into 2018, it also showed the central bank plan to use high borrowing cost to fight weak consumer prices and boost weak wage growth. This is evidence in the weaker than expected core inflation data released on Wednesday, which stood at 1.7 percent in the 12 months through November.
“Hurricane-related disruptions and rebuilding have affected economic activity, employment and inflation in recent months but have not materially altered the outlook for the national economy,” the Fed stated. Speaking further, the FOMC said the “near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely.”Meaning, weak prices remain a concern.
Also, the central bank raised economic growth for 2018 to 2.5 percent from 2.1 percent previously projected. However, it wasn’t clear how much of this adjustment reflected confidence that the tax reform currently moving through Congress will stimulate growth and deepen business spending in the year.
Despite the positive statement, the committee left long-term growth unchanged at 1.8 percent, suggesting the FOMC is not totally confident on the position of the tax reform in relation to economic growth. Especially when region like California, New York, and New Jersey are complaining.
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