The Fed boosts interest rates quarter-point, pooh-poohs more govt spending

The Fed boosts interest rates quarter-point, pooh-poohs more govt spending
The Federal Reserve hiked a key interest rate, signifying the central bank’s confidence in the US economy. Fed Chairwoman Janet Yellen also discouraged more government spending, while simultaneously refusing to advise President-elect Donald Trump.

Wednesday's move by the Fed will most likely result in higher rates on certain loans, although it is expected that the increase will be modest.

Short-term interest rates were raised by 0.25 percent to a range of 0.50 percent and 0.75 percent. It is the first rate increase of 2016, and the Fed’s second in a decade, with the first occurring in December last year.

“We expect the economy will continue to perform well, with the job market strengthening further and inflation rising to two percent over the next couple of years,” Janet Yellen, Federal Reserve chair, said at a press conference.

“Economic growth has picked up since the middle of the year,” she added. “Household spending continues to rise at a moderate pace, supported by income gains and by relatively high levels of consumer sentiment and wealth. Business investment, however, remains soft, despite some stabilization in the energy sector. Overall, we expect the economy will expand at a moderate pace over the next few years.”

Interest rates were cut to zero in 2008 during the peak of the financial crisis and remained so during the “Great Recession.”

An economic forecast was also released by the Fed for the next three years, showing more modest changes to its overview of growth, unemployment and inflation, predominantly highlighting stronger growth and a drop of unemployment in November - making it at a nine-year low at 4.6 percent.

The forecast sees the unemployment rate reaching 4.5 percent by December 2017 and staying at the same level into 2018. Chairwoman Yellen downplayed any need for further government spending in order to reach full employment, one of the Fed's chief goals officially.

"I would judge that the degree of slack has diminished. I would say at this point that fiscal policy is not, obviously, needed to help us get up to full employment," CNBC reported the central bank telling reporters Wednesday.

Yellen also downplayed the notion of President-elect Donald Trump’s administration potentially leading to faster rate hikes due to his support for expansionary policies.

She did not respond to Trump’s comments on the Fed or his tweets that have been critical of certain companies.

“I’m a strong believer in the independence of the Fed,” she told reporters. “I am not going to offer the incoming president advice.”