Federal Reserve raises benchmark interest rate 25 basis points

Fed raises target interest rate to 1.00%-1.25%

Fed makes no changes to 2017, 2018 funds rate projections

 

FOMC raised rates by 25 bp

 

The Federal Reserve said in today’s statement, “Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.

Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending has picked up in recent months, and business fixed investment has continued to expand.

Near-term Risks ‘Roughly Balanced’

The Federal Reserve said in today’s statement, “Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.

Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.”

The median projections of Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments for the Federal Funds rate at the end of 2017 remains at 1.4% and at 2.1% for 2018, unchanged from the median projections in March.

Addendum to Policy Normalization

The Federal Reserve announced that all participants agreed to augment the Committee’s Policy Normalization Principles and Plans by providing additional details regarding the approach the FOMC intends to use to reduce the Federal Reserve’s holdings of Treasury and agency securities once normalization of the level of the federal funds rate is well under way. For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6B per month initially and will increase in steps of $6B at three-month intervals over 12 months until it reaches $30B per month. For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4B per month initially and will increase in steps of $4B at three-month intervals over 12 months until it reaches $20B per month.

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The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.

 

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