FOMC raises federal funds rate to range of 1.5% to 1.75%

by Talk Business & Politics staff ([email protected]) 200 views 

The Federal Open Market Committee increased the federal funds rate by 25 basis points to a target range of 1.5% to 1.75% and issued guidance on the rate and other economic indicators. The federal funds rate, or the rate banks charge each other for overnight loans, is used to determine the interest rate one would receive on a loan. The FOMC increased the rate in its March 20-21 meeting after maintaining the existing rate in its January meeting.

Since the meeting, the labor market has continued to strengthen and economic activity has increased moderately, according to an FOMC statement. The number of jobs added to the economy has been strong in recent months and the unemployment rate has remained low. Household spending and business fixed investment has diminished since the fourth quarter. Overall inflation and inflation for items excluding food and energy have been less than 2% on a 12-month basis. Wage inflation has increased in recent months but remains low, and projections for longer-term inflation are little changed.

The FOMC makes changes to the federal funds target rate to achieve its objectives of maximum employment and 2% inflation. The committee expects economic conditions to continue to change leading to gradual increases in the federal funds rate.

Also in the March meeting, the FOMC updated projections for the federal funds rate, unemployment rate and inflation. The median projection for the federal funds rate was 2.1% in 2018, 2.9% in 2019, 3.4% in 2020 and 2.9% over the longer term. For unemployment, the median projection for the rate was 3.8% in 2018, 3.6% in 2019, 3.6% in 2020 and 4.5% over the longer term. For inflation, the median projection was 1.9% in 2018, 2% in 2019, 2.1% in 2020 and 2% over the longer term.

The FOMC is set to meet six more times this year, with the next meeting May 1-2.