In a sign of economic confidence, the US Federal Reserve on Thursday raised a key interest rate for the third time this year and foresaw as many increases in the coming year as the US economy moves to its ninth year of expansion.
The target federal funds rate — what banks charge each other for loans — has been raised to the range of 1.25 to 1.5 percent. It’s the fifth rate increase during Federal Reserve Chair Janet Yellen’s tenure.
Yellen is stepping down in January, to be replaced by Jerome Powell.
The rate increase represented a victory for a central bank that has struggled at times to deliver on its promised pace of monetary tightening.
Moreover, it also allowed Fed Chair Yellen, at her final press conference before her term ends, to signal an all-clear for the U.S. economy a decade after the onset of the 2007-2009 recession.
“At the moment the U.S. economy is performing well. The growth that we’re seeing, it’s not based on, for example, an unsustainable buildup of debt … The global economy is doing well, we’re in a synchronized expansion,” Yellen said.
“There is less to lose sleep about now that has been true for quite some time, so I feel good about the economic outlook.”
“We have seen a significant increase in the stock market, and at least some portion of that likely reflected expected tax changes,” Yellen told reporters.
While saying it would be “very difficult” to achieve the 4 percent growth President Donald Trump has promised, she touted strong consumer spending and confidence as factors that would keep the economy growing at a “moderate” pace in future years.
The Fed expects GDP to grow at 2.5 percent next year, slowing down to 2 percent in 2020.
The Federal Open Markets Committee, the Fed’s rate-setting body, said in a statement that it expected that “economic activity will expand at a moderate pace and labor market conditions will remain strong.”