The Federal Reserve today pumped up the benchmark interest rate 25 basis points, signaling ongoing confidence in the U.S. economy. This is the second hike in three months — and the first since President Donald Trump took office in January — bringing the target range for the overnight funds rate to 0.75 to 1 percent. (At its December meeting, the Fed raised the overnight funds rate to a target range of 0.5 percent to 0.75 percent.)
The committee said information it received since February’s meeting shows that the U.S. labor market has continued to strengthen and that economic activity has continued to expand at a “moderate” pace, supporting its decision.
“Job gains remained solid and the unemployment rate was little changed in recent months,” committee members noted in a statement. “Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat.”
The 9–1 decision is expected to keep the threat of inflation at bay, but it could raise costs for U.S. households. This could be especially true for Americans who borrow money to finance mortgages, car loans and credit card purchases. By raising the cost of borrowing, the hike could also rattle the Trump administration’s current plans to boost infrastructure spending and revive U.S. manufacturing. (Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, was the sole vote against the hike).
The Fed indicated today that it expects to make two more rate increases this year and three next year.
In 2008, at the height of the Great Recession, the Fed lowered its target rate to near zero to promote lending and stimulate the economy. The Fed began raising rates at the end of 2015.