The Federal Reserve has raised its benchmark interest rate by 0.25 percent, making the new range 1 percent to 1.25 percent, for a rate that is currently 0.91 percent. The Federal Reserve last raised the interest rate in March and has indicated that it plans to implement one more raise this year. While still low, the interest rate increases will mean higher borrowing costs.
In a statement Wednesday, the policymakers said that “the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.”
The economy grew at a rate of 1.2 percent in the first quarter of this year, about half as fast as it did in the final three months of 2016. Unemployment dipped to 4.3 percent in May, a 16-year low.
“Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined,” the Fed statement said. “Household spending has picked up in recent months, and business fixed investment has continued to expand.”
In the wake of the financial crisis, the central bank added Treasury securities and mortgage-backed securities to its balance sheet. Now it’s making plans to reduce those holdings, which total more than $4 trillion.
The Fed said it “currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.”
The press release issued by the Board of Governors of the Federal Reserve System is available here.