For the second time in three months, the Federal Reserve decided to raise its key interest rate a quarter point today.
The widely anticipated move now puts the federal funds rate at a target range between .75 to 1 percent.
Interest rates have been historically low since the Fed began cutting rates in 2007, as the financial crisis began. The Fed only began gradually increasing rates again a little over a year ago.
It's still completely amazing how long rates have been so low… who would ever have imagined this a decade ago? pic.twitter.com/NEAUYeFImG
— Josh Zumbrun (@JoshZumbrun) March 15, 2017
The decision to raise rates Wednesday “reflects the economy’s continued progress toward the employment and price stability objectives assigned to us by law,” Federal Reserve Chair Janet Yellen said at a press conference.
Economists predicted the hike after last week’s jobs report indicated the unemployment rate ticked down to 4.7 percent in February, as the economy added 235,000 jobs. An average of 200,000 jobs a month have been added in the past three months, and the U.S. economy has now seen 77 months of consecutive job growth.
Even the Bureau of Labor Statistics U-6, which measures underemployment in addition to unemployment, decreased to 9.2 percent.
Meanwhile, the stock market has been climbing, and the Dow Jones Industrial Average surpassed a record 21,000 points in February.
So what message does this rate hike send to consumers?
“The simple message is: The economy is doing well,” said Yellen, who added the Fed has confidence in the “robustness of the economy and its resiliency to shocks.”
“The economy continues to expand at a moderate pace, solid income gains and relatively high levels of consumer sentiment and wealth have supported household spending growth,” Yellen said, explaining the Fed’s decision to raise rates. “Business investment which was soft for much of last year, has firmed somewhat and business sentiment is at favorable levels. Overall, we continue to expect that the economy will expand at a moderate pace over the next few years.”
Despite this rosy assessment of the economy, the Fed is not declaring “a clean bill of health” for the U.S. labor market, Indeed.com’s Tara Sinclair said. “Yellen has been clear that there are continued structural concerns, most notably the low labor force participation of prime-age workers and also the elevated share of people in part time jobs who want more work hours,” she told NewsHour in an email.
Economists expect the Fed to raise rates gradually two to three more times in 2017.
And with rising interest comes a larger risk of debt, says financial analyst Greg McBride of Bankrate.com.
“The cost of borrowing is going to continue to increase and variable rate debt like credit cards are most susceptible,” he told NewsHour in an email. “Pay this debt down as quickly as you can.”
Here are some of the other reactions to Wednesday’s news:
As expected, #Fed hikes 25 bps & signals 2 more hikes for 2017 & 3 for 2018 – this in a slight migration up of the dot plot but not hawkish.
— Mohamed A. El-Erian (@elerianm) March 15, 2017
FOMC statement less hawkish than expected w 1 dissent but tighter consensus on 3 to 4 rate hikes 2017
— Diane Swonk (@DianeSwonk) March 15, 2017
#Fed's Yellen points out that their rate hike today is in part to prevent the need for rapid rate hikes in the future.
— Tara Sinclair (@TaraSinc) March 15, 2017