The Federal Reserve raised interest rates on Wednesday December 16 2015 by a quarter of a percentage point. The action marks the first time the central bank has increased rates since 2006 and only the second time it has hiked rates in more than a decade.
The Fed’s decision to finally begin the process of “normalizing” rates comes as the U.S. economy continues to improve. The job market has been strengthening for some time and inflation has remained low but is gradually starting to move closer to the Fed’s 2% target.
In a statement released along with the rate decision the Fed said that it expects the economy to continue to grow at a moderate pace and that job gains will remain solid. The central bank also noted that inflation has been running below its target but predicted that it will rise to 2% over the next two years as the economy continues to improve.
The Fed’s decision to raise rates was widely expected by financial markets and economists. However the central bank made it clear that future rate hikes will be gradual and will be data dependent. In other words the Fed is not on a preset path of rate increases and will only raise rates further if the economy continues to strengthen.
The Fed’s decision to finally begin the process of normalizing rates is a positive sign for the economy. It suggests that the central bank believes the economy is strong enough to handle higher rates and that further improvement is likely. While the Fed’s decision to begin raising rates is welcome news it’s important to remember that the central bank is still keeping rates at historically low levels. This means that the economy still has plenty of room to grow before rates return to more normal levels.
Why did the Federal Reserve raise interest rates?
Answer: To manage inflation and keep the economy stable.
How does the Federal Reserve raising interest rates affect the economy?
Answer: Raising interest rates usually slows the economy.
What is the Federal Reserve’s goal when raising interest rates?
Answer: The Federal Reserve’s goal is to keep inflation in check and maintain a healthy economy.
Why is inflation a concern for the Federal Reserve?
Answer: Inflation can erode the purchasing power of consumers and creates instability in the economy.
How does the Federal Reserve raise interest rates?
Answer: The Federal Reserve can raise interest rates by buying and selling government securities in the open market.
What are the effects of the Federal Reserve raising interest rates?
Answer: When the Federal Reserve raises interest rates it usually slows the economy.
How does the Federal Reserve lowering interest rates affect the economy?
Answer: Lowering interest rates usually boosts the economy.
Why does the Federal Reserve lower interest rates?
Answer: The Federal Reserve lowers interest rates to encourage borrowing and spending which can help to stimulate the economy.
How does the Federal Reserve lower interest rates?
Answer: The Federal Reserve can lower interest rates by buying and selling government securities in the open market.
What are the effects of the Federal Reserve lowering interest rates?
Answer: When the Federal Reserve lowers interest rates it usually boosts the economy.
What is the Federal Reserve’s goal when lowering interest rates?
Answer: The Federal Reserve’s goal is to promote borrowing and spending which can help to stimulate the economy.
How does the Federal Reserve buying government securities affect interest rates?
Answer: When the Federal Reserve buys government securities it increases the money supply and lowers interest rates.
How does the Federal Reserve selling government securities affect interest rates?
Answer: When the Federal Reserve sells government securities it decreases the money supply and raises interest rates.
What is the relationship between the Federal Reserve and interest rates?
Answer: The Federal Reserve can influence interest rates by buying and selling government securities in the open market.
What are the effects of the Federal Reserve’s actions on interest rates?
Answer: The Federal Reserve’s actions can cause interest rates to go up or down.
