Federal Reserve Raises Interest Rates For First Time In More Than 3 Years
WASHINGTON, D.C. (CBSDFW.COM/CNN) — For the first time in more than three years, the Federal Reserve is raising interest rates. The central bank made the announcement March 16 at the conclusion of its highly anticipated two-day monetary policy meeting.
The move marks the end of the federal government's pandemic-era easy money policy and comes amid soaring inflation across America. The federal funds rate now stands at 0.25-0.5%.
The quarter-percentage-point increase had been well telegraphed by the central bank, with Chair Pro Tempore Jerome Powell hinting at it repeatedly over the past few months. Earlier this month, Powell told lawmakers that he favored a quarter-point raise.
This is the first rate increase since December 2018 and the first time rates have moved from their level of near zero since the bank slashed them almost exactly two years ago in March 2020 in the wake of the COVID pandemic.
Prices have soared over the past year for the majority of Americans, pushing inflation well above the Fed's long-term target of 2% and forcing its hand. The central bank has a dual mandate to keep prices stable and employment at the maximum.
But during the pandemic, prices have risen on the back of high demand, supply chain chaos and higher energy costs. Initially, Powell referred to the pandemic inflation as "transitory" before retiring the use of the term during a Congressional hearing last November.
In the year ended in February, consumer prices rose 7.9%, while the prices US producers received for their goods soared 10% over the same period. Neither figure is adjusted for seasonal swings.
Meanwhile, the US labor market recovery has come along swiftly following the shock of the spring 2020 shutdown, which marked the largest job loss in history. As of February, the nation was still short 2.1 million jobs compared with the same month two years earlier.
Between the strong job market and high inflation only half of the Fed's mandate is fulfilled.
Wednesday's policy update also included a new set of projections from the central bank, showing that Fed officials expect a median federal funds rate of 1.9% by the end of this year, before raising it to 2.8% in 2023. But the Fed could also raise rates faster, if inflation does not moderate.
The central bankers also revised up their inflation predictions to a median of 4.3% by year-end, compared with 2.6% projected in December.
US economic growth was meanwhile cut to a median 2.8% this year, from the 4% expected in December.
Russia's invasion of Ukraine is adding some more uncertainty to the economic outlook.
"The implications for the US economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity," the Fed said in Wednesday's statement.
(© Copyright 2022 CBS Broadcasting Inc. All Rights Reserved. The CNN Wire™ & © 2022 Cable News Network, Inc., a WarnerMedia Company contributed to this report.)
