The Federal Reserve has announced that it would raise short-term interest rates for the first time since the 2007-2008 financial crisis. The decision is described as a vote of confidence in the American economy even as much of the rest of the world struggles.
The announcement details that the interest rate hikes will range between 0.25 percent and 0.5 percent which signals the beginning of the end for the central bank’s stimulus program. Federal officials emphasized that they intended to raise rates gradually, and only if economic growth continues. Short-term rates will rise by about one percentage point a year for the next three years, Fed officials predicted.
Interest rates on mortgages and other kinds of loans, and on savings accounts and other kinds of investments, are likely to remain low for years to come. The announcement came exactly seven years to the day after the central bank cut its benchmark rate nearly to zero.
The Federal Reserve is trying to tiptoe between two kinds of danger. It wants to raise rates to improve its defenses against future risks, including higher inflation or another economic downturn. But if it moves too quickly, it risks undermining the current recovery. It faces the additional challenge of increasing domestic rates while other central banks are holding rates down.
The decision was the most important and riskiest step the Fed has taken since Ms. Yellen became chairwoman in early 2014. Every other developed nation that has raised rates since the end of the financial crisis has been forced to backtrack as growth slowed. Ms. Yellen won the support of all 10 voting members of the Federal Open Market Committee, a victory that reflects the Fed’s tradition of maintaining the appearance of consensus on major decisions. They cited strong job growth, and the broader backdrop of a moderate but steady economic expansion, as evidence that the economy no longer needed quite as much of its help.
Senator Bernie Sanders of Vermont, a Democratic presidential candidate, said in a statement “When millions of Americans are working longer hours for lower wages, the Federal Reserve’s decision to raise interest rates is bad news for working families,” “The Federal Reserve should act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks seven years ago.”
Meanwile, some Republicans, bid good riddance to the era of near-zero interest rates. Representative Jeb Hensarling, Republican of Texas and chairman of the House Financial Services Committee, said in a statement. “Unsustainably low interest rates clearly didn’t solve the problem, or else Americans today wouldn’t be stuck in the slowest, worst-performing economic recovery of our lifetimes.”