With economic growth steady and an unemployment rate that continues to fall, the Federal Reserve announced Wednesday it is raising interest rates.
This is only the second time in the last decade that rates have been raised.
“The economy has proven to be remarkably resilient, so it is a vote of confidence in the economy,” said Federal Reserve chair Janet Yellen.
Officials ended their final meeting of 2016 by raising the federal funds rate — what banks charge each other for short-term loans — to a range of 0.50 percent to 0.75 percent.
The vote was unanimous, marking the first time since June that all 10 Fed officials agreed.
The Fed previously increased rates at the December 2015 meeting from a near-zero level, an unprecedented low that was set in 2008 amid the fallout from the housing bust and financial meltdown.
Fed officials maintained their outlooks for 2018 and 2019: they forecast three additional rate hikes each year.
By the end of next year, the Fed expects its short-term rate will be between 1.25 percent and 1.5 percent, and by the end of 2018, they forecast it will be between 2 percent and 2.25 percent. They see the rate between 2.75 and 3 percent by the end of 2019.
The market closed a little lower following Wednesday’s announcement.
Though the rate increase is small, 0.25 percent, the impact will likely affect millions of Americans.
If you’re a saver, but are tired of not seeing that bank account grow, this is good news for you. An increase in the interest rate means more interest earned by your savings accounts, slowly but surely.
For those looking to purchase big ticket items, this increase will make borrowing money a little more expensive, and possibly a little bit harder.
But don’t panic. A rate hike by the Fed does not guarantee that mortgage rates will rise. Though rates jumped following the election, at 4.1 percent, they are still very low.
President-elect Donald Trump was very critical of the super-low interest rates during his campaign.
“The Fed is doing political things by keeping interest rates at this level and believe me, when they raise interest rates, you’re going to see some very bad things happen,” he said then.
Yellen downplayed the expectations that Trump’s presidential victory could lead to faster rate hikes.
She attributed the increase to the 4.6 percent unemployment rate and possibly some changes in federal budget policy beginning next year, although she emphasized that any changes to the projections were “modest.”
“This is a very modest adjustment in the path of the federal funds rate,” Yellen said.