Washington | The US Federal Reserve has raised the interest rates by one quarter percentage, the first in seven years when America tumbled into a deep financial crisis with the collapse of the Wall Street.
The Federal Open Market Committee decided to raise the target range for the federal funds rate by 0.25 percentage point bringing it to 0.25 to 0.50 per cent, US Federal Reserve Board Chairwoman Janet Yellen told reporters Wednesday. This action marks the end of an extraordinary seven-year long period during which the Federal Reserve funds rate was held near zero to support the recovery of the economy from the worst financial crisis and recession since the Great Depression, she said. It also recognises the considerable progress that has been made toward restoring jobs, raising incomes and easing the economic hardship of millions of Americans, Yellen said. The decision reflects the committee’s confidence that the economy will continue to strengthen, she said, adding that the economic recovery has clearly come a long way, although it is not yet complete. Room for further improvement in the labor market remains and inflation continues to run below our longer run objective. But with the economy performing well and expected to continue to do so, the committee judged that a modest increase in the federal funds rate target is now appropriate. Recognizing that even after this increase, monetary policy remains accommodative, Yellen said. According to Yellen, the process of normalizing the interest rates is likely to proceed gradually, although future policy actions will obviously depend on how the economy evolves relative to their objectives of maximum employment and two percent inflation.
Since March, the committee has stated that it would raise the target range for the federal funds rate when it had seen further improvement in the labor market and was reasonably confident that inflation would move back to its 2 per cent objective over the medium term, she noted. Yellen said the Federal Reserve currently expects that with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen, although developments abroad still pose risks to US economic growth. These risks appear to have lessened since last summer, she observed.