With impressive unemployment rates and unexpectedly low inflation, the Federal Reserve now has room to raise interest rates. This Wednesday, they announced the third rate hike since December.
The quarter point increase “reflects the progress the economy has made,” said Federal Reserve chair Janet Yellen.
In May, the unemployment rate fell to 4.3% - the lowest it’s been since 2001. This number is expected to fall to 4.2% in 2018.
The Fed’s forecast for inflation is also bright.
“Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the committee’s 2% objective over the medium term,” reads a statement released by the Federal Open Market Committee after a 2-day meeting in Washington.
Predictions for economic growth in 2017 are at 2.2%, which is an increase from predictions made in March.
“Today’s rate increase by the Fed reflects the continued strength and progress of the US economy,” said Citizens Bank’ admin Tony Bedikian.
Today's interest rates, which are still lower than those of prior decades, mark a gradual recovery from 2008, when the Feds announced a 0% interest rate in a desperate attempt to help America recovery from the collapsed housing market.
The Federal Reserve has also announced plans to start selling some of the $4.5 trillion in holdings it collected during and after the recession, and it has plans to implement a balance sheet normalization program later this year.
“What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis,” explained Yellen.
As reported by Reuters, “The initial cap for the reduction of the Fed’s Treasuries holdings would be set at $6 billion per month, increasing by $6 billion increments every three months over a 12-month period until it reached $30 billion per month.”
If predictions are correct, we should expect one more rate hike in 2017.
Editor's note: The Fed lowers interest rates to stimulate the economy and raises them to prevent inflation in a better economy. Obama's performance on the economy was so poor that the Fed took interest rates to zero and they stayed there.