WASHINGTON (Dec. 16, 2016) — The Federal Open Market Committee (FOMC) of the Federal Reserve has raised a key interest rate for the first time in a year and only the second time in a decade.
The Fed's expected rate of economic growth could lead to further rate hikes sooner than expected, it said.
The federal funds rate, the rate at which banks lend to other banks, was raised to 0.5 to 0.75 percent, the FOMC announced Dec. 14.
The committee raised the federal funds rate "in view of realized and expected labor market conditions and inflation," it said in its statement.
Recent economic projections from the Federal Reserve Board and regional Federal Reserve Bank presidents indicate a brighter financial picture than they expected in September. The U.S. economy will grow 1.9 percent in 2016 and 2.1 percent in 2017, according to the Fed.
In deciding to raise the federal funds rate, the FOMC said, it noted that the labor market continues to strengthen and that economic activity has been expanding moderately since mid-2016.
"Job gains have been solid in recent months, and the unemployment rate has declined," the FOMC said. "Household spending has been rising moderately, but business fixed investment has remained soft."
Inflation has increased, but is still below the FOMC's benchmark long-run objective of 2 percent, it said.
"The stance of monetary policy remains accommodative, thereby supporting some further strengthening to labor market conditions and a return to 2-percent inflation," it said.
The FOMC last raised the federal funds rate on Dec. 16, 2015, to 0.25 to 0.5 percent. In 2006, the committee cut the rate to near zero, reflecting poor economic conditions.