Fed Raises Rate for Second Time This Year

The Federal Reserve’s Open Market Committee decided yesterday to raise the federal funds rate to a target range of 1% to 1.25%, the second increase for this year. In a press release, the Fed said that its monetary policy remains accommodative in support of strengthening labor market conditions and a sustained return to 2% inflation.

“Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability,” according to the release. “The committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. 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. Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely.”

Economic activity has risen moderately since the beginning of this year. Job gains have been solid and the unemployment rate has declined. Household spending has increased in recent months and business investment has expanded, the Fed said. Inflation has declined recently and is running slightly below 2%.

The committee asserted that it will assess realized and expected conditions in future decisions concerning the interest rate, with the continuing objective of maximum employment and 2% inflation. Information taken into account will include labor market conditions, indicators of inflation pressures and inflation expectations, and financial and international developments. The Committee anticipates that economic conditions will warrant gradual increases in the federal funds rate, though it is likely to remain “below levels that are expected to prevail in the longer run,” according to the release.

– Adam Fusco, associate editor

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