Fed Again Hikes Interest Rates

And marks the end of 'accommodative' policy era
By Newser Editors and Wire Services
Posted Sep 26, 2018 1:38 PM CDT
Fed Again Hikes Interest Rates
In this July 17, 2018, file photo Federal Reserve Board Chair Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on "The Semiannual Monetary Policy Report to the Congress," at Capitol Hill in Washington.   (AP Photo/Jose Luis Magana, FIle)

Federal Reserve officials voted Wednesday to raise a key, short term interest rate for the third time this year, the AP reports. Investors largely expected an increase in the federal funds rate—the interest that banks charge each other—based off public statements by Fed officials. The benchmark overnight lending rate was increased by a quarter of a percentage point, to a range of 2% to 2.25%, Reuters reports. That's up from a level of near-zero between the end of 2008 and late 2015. The higher range points to an improving US economy with inflation staying near the Fed's target of 2%. The vote to raise rates was 9 to 0.

In their statement announcing the decision and marking the end of the "accommodative" monetary policy era, Fed officials removed a sentence in prior statements that said its interest rate policy was supporting a strong job market and a return to 2% inflation. By eliminating that statement, they're suggesting that those goals are now within reach and that rate hikes will likely continue, per the AP. Federal Reserve policymakers expect to hike rates one more time this year, three times next year, and only once in 2020, the same as they forecast in June. That would put the rate at 3.4% by 2020, about half a percentage point above the estimated "neutral" rate at which interest rates don't restrict or stimulate the economy. (More Federal Reserve stories.)

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