Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Friday, July 19, 2024 | Back issues
Courthouse News Service Courthouse News Service

Fed Waves Good-Bye to Near-Zero Interest Rates

WASHINGTON (CN) - The Federal Reserve voted Wednesday to approve a modest increase in interest rates, bringing to a close seven years of near-zero rates.

The vote of the Federal Open Market Committee moves the federal funds rate range to between 0.25 and 0.5 percent, the highest the key rate has been since 2008 when the Fed lowered rates to near-zero levels with an eye toward speeding economic recovery after the Great Recession.

Wednesday is also the first time since 2006 the agency has voted to bump up interest rates.

The move has been anticipated for some time, with hints the Fed would take action soon growing stronger in recent months. Federal Reserve Chairwoman Janet Yellen told the House Financial Services Committee last month a December rate hike was a "live possibility."

"The committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective," a statement announcing the rate hike says. "Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent."

Inflation remains lower than the agency's target of 2 percent, but Yellen cited strong unemployment numbers, coupled with more residential and business investment, at a press conference Wednesday afternoon as justification for bumping up the rate.

Yellen expressed confidence that the inflation will reach the Fed's target soon, saying several "transitory" factors like low energy prices are keeping it artificially low.

Projections indicate inflation will rise steadily in the coming years before hitting 2 percent by 2018, Yellen specified.

While the rate hike is a milestone that signals the Federal Reserve's optimism in the country's economic recovery, Yellen warned rates will be likely remain low "for some time" and will be subject to the agency's careful monitoring of economic conditions.

Presidential hopeful Sen. Bernie Sanders blasted the Federal Reserve's move in a statement Wednesday, calling the rate hike bad for working families.

"At a time when real unemployment is nearly 10 percent and youth unemployment is off the charts, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people," Sanders said in a statement. "The Fed should act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks seven years ago."

Yellen meanwhile said now is the time to increase rates, before the market gets too accustomed to near-zero interest.

"Were the [Federal Open Market Committee] to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly at some point to keep the economy from overheating and inflation from significantly overshooting our objective," Yellen said. "Such an abrupt tightening could increase the risk of pushing the economy into recession."

Yellen also said the hike in rates "should not be overstated," as they are still low and will likely remain that way "in the long run."

If inflation doesn't rebound as expected, the Federal Reserve would be force to take "accommodative" action to push them along, Yellen acknowledged.

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.