Fed raises interest rates for first time in nearly 10 years

The Federal Reserve announced Wednesday that it will raise interest rates a quarter of a percent. This is the first time that the Fed has done so in more than nine years.

Since 2008, when the Fed lowered interest rates to near zero to combat the Great Recession, the Fed has kept interest rates between zero and a quarter of a percent.

The decision “reflects the Committee’s confidence that the economy will continue to strengthen,” Fed Chair Janet Yellen said in a press conference.

For more than a year now, the Fed has contemplated raising interest rates, but repeatedly decided that there was still too much slack in the market.

The Fed’s decision to raise the federal funds rate to .25 percent comes after two solid jobs reports in October and November. A range of labor market indicators encouraged the decision, including “ongoing job gains and declining unemployment,” a Federal Reserve press release stated. The unemployment rate is at 5 percent, down from its peak of 10 percent in 2009. But there is still room for improvement in the labor market, Yellen said.

Yellen noted that increasing rates gradually now lowers the risk of having to raise interest rates abruptly in the future. “Such an abrupt tightening could risk pushing the economy into recession,” she said.

She noted that even after this increase, monetary policy remains flexible and will depend on the state of the economy.

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