US Federal Reserve Raises Interest Rates By 25 Basis Points

• US Federal Reserve Raises Interest Rates By 25 Basis Points

The Federal Open Market Committee (FOMC) on Wednesday confirmed the popular prediction of the US economic improvement and labour market continuous growth.

The committee unanimously voted to raise the federal funds rate by 25 basis points from 0.50 percent to 0.75 percent, the first rate hike in a year and second in a decade.

According to the FOMC report, the economy continued to strengthen and has been expanding at a moderate pace since the second half of the year. Job creation remained strong in recent months, pushing the unemployment rate to a record-low.

While household spending has been rising, business fixed investment remained weak. The committee also noted that the consumer prices that measure inflation has increased but still below the Committee’s 2 percent target — a reflection of dropped in energy prices and non-energy imports.

However, the committee expects inflation to rise to 2 percent over the medium term as effects of import prices and lower oil prices dissipate and the labour market strengthens further.

Accordingly, the committee said the position of “Monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a return to 2 percent inflation.”

Near-term risks to the economic outlook appear roughly balanced.

But in determining the timing and future adjustments of the federal funds rate, the Committee will assess labour market conditions, inflation pressures and expectations, and global financial developments before rates adjustment.