By Ovunc Kutlu
UPDATES WITH FED CHAIR YELLEN’S COMMENTS, MARKETS DATA
NEW YORK (AA) – The Federal Reserve increased its benchmark interest rate by 0.25 percent, marking its first rate hike since last December and only the second in a decade, the Federal Open Market Committee (FOMC) announced Wednesday.
After keeping rates unchanged in the past seven meetings, all 10 of the FOMC members voted in favor of raising the range for the federal funds rate to 0.50 – 0.75 percent, from 0.25 – 0.50 percent.
The FOMC also noted that it now expects to increase rates three times in 2017, from the previous projection of two rate hikes.
Some of the FOMC members factored President-elect Donald Trump’s economic proposals into their projections for 2017, the Fed Chair Janet Yellen said in a press conference after the announcement.
Regarding the update in the number of possible rate hikes next year, Yellen said those new projections “may have been a factor that was one of several that occasioned these shifts”.
During his campaign, Trump said the Fed’s low-rate policy created a “false economy” and Yellen “should be ashamed” of keeping rates low.
For Trump’s jobs and growth goals, however, low interest rates are better for the economy in order to keep American exports competitive internationally.
“I’m not going to give the incoming president advice about how to conduct himself in policy,” she said, while adding: “I’m a strong believer in the independence of the Fed … We have been given the independence by Congress to make decisions about monetary policy.”
The Fed’s unanimous rate hike decision came “in view of realized and expected labor market conditions and inflation”, an FOMC statement read.
“Job gains have been solid in recent months and the unemployment rate has declined,” it added.
The American economy added 178,000 jobs in November and unemployment rate fell to 4.6 percent.
The FOMC said it will “assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation”, in order to determine the timing of next rate hikes.
The Fed also added that it expects American economy to grow by 1.9 percent in 2016 and 2.1 percent in 2017, which are both 0.1 percent higher than the central bank’s projections in its September meeting.
The estimates of unemployment rates were also lowered by 0.1 percentage points. The bank projects unemployment rate to average 4.7 percent and 4.5 percent in this year and the next, respectively.
Inflation is anticipated at 1.5 percent in 2016 and 1.9 percent in 2017.
After the Fed’s rate hike decision, the U.S. stock market moved into negative territory, value of the U.S. dollar increased against other currencies, and crude prices climbed in the global oil market.
Value of the greenback rose to 0.79 against the British pound, from 0.78 prior to the Fed’s announcement. During the same period, the dollar’s value increased from 3.46 to 3.51 against the Turkish lira, before 2000 GMT.
American benchmark West Texas Intermediate fell from $51,73 per barrel to $51.02 a barrel, and international benchmark Brent crude declined from $54.62 per barrel to $53.85 a barrel.
