Fedreral Reserve Raises Key Interest Rate

Federal Reserve Rates 2004-2016

Federal Reserve Interest Rate 2004 – 2016

In June of 2006 the federal interest rate stood at 5.25%. Federal Reserve Chair Janet Yellen announced today Dec 14, 2016 that the central bank will nudge its benchmark interest rate from the current 0.25-0.50 percent to a range of 0.50-0.75 percent.

The Vanguard Group global chief economist, Joe Davis stated:

“We hope this signifies a continuation of gradual tightening and removal of the extraordinarily accommodative monetary policy put in place after the Global Financial Crisis.” … “We believe the Fed could raise policy rates to 1.5% by the end of 2017, potentially once a quarter. The U.S. economy is strong enough that it no longer warrants short-term interest rates below 1%.”

The press release issued by the Board of Governors of the Federal Reserve System is posted at https://www.federalreserve.gov/newsevents/press/monetary/20161214a.htm

The press release states that the inflation rate is still below the Committee’s 2 percent objective. They believe the increase “remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation”. Various analysts have stated that the possible increased spending and tax cuts of the new administration added motivation along with the desire to give back the ability of the Fed to cut interest rates in the future should it be necessary to stimulate the economy.

For a longer term perspective, Federal Reserve Interest Rates from 1954-2016 are shown below

Federal Reserve Interest Rate 1954 – 2016

Data from: https://fred.stlouisfed.org/data/FEDFUNDS.txt

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