Strengthening US economy prompts Fed to raise rates

The Federal Reserve raised its benchmark interest rate Wednesday for just the second time since the financial crisis of 2008, saying the American economy is expanding at a healthy pace and setting itself up as a counterweight to President-elect Donald J Trump’s push for considerably faster growth.

The Fed cited the steady growth of employment and other economic measures and signalled that it expects to raise rates more quickly next year to prevent the economy from growing too quickly.

“My colleagues and I are recognising the considerable progress the economy has made,” Janet L Yellen, the Fed’s chairwoman, said at a news conference after the announcement. “We expect the economy will continue to perform well.”

 

The widely expected decision moves the Fed’s benchmark rate to a range of 0.5 per cent to 0.75 per cent, still very low by historical standards. Low rates support economic growth by encouraging borrowing and risk-taking. The American economy has expanded by about 2 per cent a year over the last six years, and the unemployment rate has fallen to 4.6 per cent. The Fed’s assessment that the economy is growing at a healthy pace - not too hot, not too cold — is starkly at odds with Trump, who has promised 4 per cent growth and has described job creation as “terrible” and economic growth as anaemic.

Already on Wednesday, one Republican member of the House Financial Services Committee, Representative Roger Williams of Texas, criticised the Fed’s move.

“Today’s decision by the Fed to raise the interest rate is entirely premature and will be burdensome to a nation already struggling to pull itself out of this slow-growth Obama economy,” Williams said in a statement. “By making rates even higher, the Fed is effectively making our hardships even harder.”

Williams did not object when the Fed raised rates last December.

In announcing the decision after a two-day meeting of the Fed’s policy-making committee, the central bank gave little indication that Trump’s election had altered its economic outlook. The Fed said it still expected a slow economic expansion and a steady march toward higher rates. In separate forecasts also published Wednesday, Fed officials predicted three rate increases in 2017.

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© 2016 The New York Times News Service