The Federal Reserve
Raises Benchmark Interest Rate
Monetary policy is
normalizing due to economic improvement.
Provided by MidAmerica Financial Resources
On March 15, the Federal Reserve
raised the benchmark interest rate by a quarter-point to a range of 0.75-1.00%.
The increase was widely expected, and it represented a vote of confidence in
This was the central bank’s second
rate hike in three months, and Wall Street took it in stride, with the S&P
500 rising nearly 15 points on the day. One reason for that may have been the
Fed’s latest dot-plot forecast, which remained as it was when the last interest
rate adjustment was made in December. The Fed still projects a total of three
hikes for 2017.1,2
When the economy picks up its pace, the Fed responds. In the past several months, job growth and economic output have
been steady, and inflation pressure has built to where consumer prices are
rising close to 2% a year. The central bank thinks economic growth is now
significant enough to warrant a series of small rate hikes.3
interest rates slowly rise, retirees & savers could benefit. While higher
rates do imply costlier borrowing, there are also some positives that come with
tightening. Rising rates are good for interest-bearing bank accounts and
fixed-rate investment yields. Higher interest rates encourage banks to lend
more, improving the availability of credit.
Rate increases often promote
dollar strength, meaning the dollar could buy more abroad – a perk for
travelers. Even with slim inventory in the housing market, home sales could now
get a boost – prospective home buyers may not want to wait much longer to
arrange a mortgage. If interest rate adjustments occur two or three times a
year (as they once commonly did), then investors may interpret Fed monetary
policy statements less obsessively and focus on market fundamentals to greater
As Fed chair Janet Yellen
commented to reporters after the Federal Open Market Committee’s decision
Wednesday, “The simple message is, the economy is doing well.” Sustained
economic improvement commonly leads the central bank to increase interest
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1 - marketwatch.com/story/fed-raises-interest-rates-by-a-quarter-point-sees-two-move-moves-this-year-2017-03-15