FOMC increases federal funds rate by 25 basis points, updates guidance

The Federal Open Market Committee increased the target range for the federal funds rate by 25 basis points to between 1.75% and 2%. The committee met June 12-13, and 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. This is the second time this year the FOMC has increased the rate.

Since the FOMC’s May meeting, the labor market has continued to improve and economic activity has risen, according to the FOMC. Job gains have been strong and the unemployment rate has fallen. Household spending has risen, and investment into businesses has continued to rise. Overall inflation and inflation for items, excluding food and energy, have risen to nearly 2%. Long-term expectations for inflation have remained unchanged.

The FOMC expects that gradual increases in the target range for the federal funds rate will lead to continued economic growth, strong labor market conditions and inflation near the FOMC’s 2% goal over the medium term.

Along with increasing the federal funds rate, the FOMC released new guidance on the federal funds rate, the change in gross domestic product (GDP), unemployment rate and inflation rate for 2018, 2019, 2020 and the longer term. The median projection for the federal funds rate is 2.4%, 3.1%, 3.4% and 2.9%, respectively. The median projection for the change in real GDP is 2.8%, 2.4%, 2% and 1.8%, respectively. The median projection for the unemployment rate is 3.6%, 3.5%, 3.5% and 4.5%, respectively. The median projection for inflation is 2.1%, 2.1%, 2.1% and 2%, respectively. The median projection for inflation, excluding food and energy, is 2% for 2018, 2.1% for 2019 and 2.1% for 2020. A longer term projection for the previous was not included in the guidance.