Fed raises key interest rate for 1st time since 2006

WASHINGTON (Dec. 16, 2015) — The Federal Open Market Committee (FOMC) of the Federal Reserve System raised a key interest rate Dec. 16 — the first time in nine years that the Fed raised interest rates, and the first since 2008 that the rate hasn't been at zero.

The FOMC raised the target range for the federal funds rate — the rate at which banks loan money to other banks — to ¼ to ½ percent. That rate had stood at zero to ¼ percent since 2008.

“The committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective,” the FOMC said in its statement outlining its decision.

When the committee lowered the federal funds rate to zero, the unemployment rate stood at 10 percent. Now, it is half that, standing at 5 percent in the Bureau of Labor Statistics numbers that were issued Dec. 4.

In determining the timing and size of future adjustments to the federal funds rate, the FOMC will consider both realized and expected economic conditions, it said.

“This assessment will take into consideration a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and reading on financial and international developments,” it said.

U.S. economic activity has been growing moderately since the FOMC last met in October, the committee said. Household spending, business fixed investment and the housing market have improved, but net exports were soft during the two-month period, it said.