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U.S. Fed Hikes Interest Rates by 25 bps

The Federal Reserve’s Federal Open Market Committee raised the federal funds rate by 0.25%, marking only the third rate hike since the financial crisis and a sign that the central bank sees the economy as finally heating up after a sluggish recovery. This is the first hike in the year 2017.

The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75% to 1.00% marked one of the Fed's most convincing steps yet in the effort to return monetary policy to a more normal footing. However, the Fed's policy-setting committee did not flag any plan to accelerate the pace of monetary tightening. Although inflation is close to the Fed's 2% target, it noted that goal was symmetric, indicating a possible willingness to allow prices to rise at a slightly faster pace.

Further rate increases would only be gradual, the Fed said in its policy statement, with officials sticking to their outlook for two more rate hikes this year and three more in 2018. The Fed lifted rates once in 2016. The Fed's projections showed the economy growing by 2.1% in 2017, unchanged from the December forecast. The median estimate of the long-run interest rate, where monetary policy would be judged as having a neutral effect on the economy, held steady at 3.0%.

News Characteristics

Date : Mar 15, 2017
Region : North America
Industry : Banks
Function : Regulation and Compliance
Sub-Function : Regulatory changes