Target Interest Rate Hiked To Over 1% By Federal Reserve
Today the Federal Reserve announced an increase to the target interest rate. Previously at 0.75%-1.00%, the Fed is hiking the target interest rate to 1.00-1.25%. The announcement was expected by most experts in light of continued improvements to the job market and overall economy.
The Fed’s announcement reflects its confidence in the economy. The decision was based largely on low unemployment and inflation rates. In May, the unemployment rate dropped to 4.3%, the lowest since 2001. Inflation continues to trend slightly below 2%, but the Fed expects that it will stabilize around 2% in the medium term. With respect to future increases to the target interest rate, the Fed indicated that its decision will depend largely on inflation. The announcement states that the Fed “will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.”
This recent announcement also indicates a shift away from utilizing a low target interest rate to stimulate the economy, which it has done since dropping the rate to 0.00% to 2008. It announced that it “currently expects to begin implementing a balance sheet normalization program this year”, meaning that it expects to work toward its benchmark rate being at a neutral level.
As for the housing market, the announcement is unlikely to have any significant impact. The Fed’s announcement was largely expected, and so interest rates will have already adjusted for the increase. Market expectations are that the Fed will further raise the rate two more times this year, and the Fed’s announcement was consistent with that expectation.
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