FRB Raises Rates; Signals Pace for Future

Yesterday the Federal Reserve Board (FRB) raised short term interest rates by 25 basis points, bringing the benchmark federal funds rate to a range of 0.75% to 1.0%, following their two-day Federal Open Markets Committee (FOMC) meeting, as reported by Bloomberg.

Looking back at expectations before the meeting, investors debated whether policy makers would change their forecasts for the rest of 2017 and beyond. It was expected that the FRB would likely continue to acknowledge ongoing improvements in the outlook for the U.S. economy following a string of better-than-expected economic data, including the Labor Department's latest report on the job market, according to Bloomberg.

FRB Chair Yellen specifically stated in her press release, "The simple message is – the economy is doing well and the unemployment rate has moved way down and many more people are feeling more optimistic about their labor prospects."

Economists were also predicting a "dot-plot", which displays individual rate forecasts of officials on the FOMC, of three rate hikes this year, prior to the meeting. With regard to this, the FRB stated in its press release, "in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation."

Ultimately, the FRB left the "dot-plot" forecast for the federal funds rate unchanged, projecting two more quarter-point increases for 2017 and three for next year, based in policymakers' median estimates.

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