WASHINGTON–As expected, the Federal Open Market Committee has voted today to raise interest rates by 25 basis points, setting a target range for the federal funds rate of 1.50% to 1.75%.
The Fed cited a strong labor market and moderate rises in economic data as among the reasons for making the move. Those conditions and others, including household spending, support its target of 2% inflation, the Fed said.
“On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2%,” the Fed said in a statement. “Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”
Many analysts have forecast additional rate increases this year, and the Fed did nothing to tamp down those expectations.
“The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong,” the FOMC said. “Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee's 2% objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely…The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
NAFCU Chief Economist and Vice President of Research Curt Long said the the Fed's latest projection shows markedly higher expectations for economic growth and lower expectations for the unemployment rate in 2018 and 2019. The inflation forecast increased only slightly.
"NAFCU agrees with the committee's view that inflation is poised to increase in the coming months and, if that comes to pass, will bring a fourth rate hike during 2018 more squarely into view," Long said.
Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.