The Federal Reserve opted to raise interest rates an additional quarter-point on Wednesday, signaling confidence in the United States economy. The increase will bring the interest rate up to 1.25 percent in a move that was highly anticipated by the market.
Fed Chair Janet Yellen states that the rate hike “reflects the progress the economy has made and is expected to move toward maximum employment and price stability.”
The Fed has raised the interest rate twice in 2017, with economists expecting a potential rate hike in December.
The rate hike came after a two-day meeting, with only one member of the committee voting to keep rates unchanged: Neel Kashkari. The Fed’s choice to raise rates was in part to the unemployment rate declining and job gains.
Unemployment rates reached a 16-year low in May.
The Fed doesn’t expect the economy to reach the 3% growth target of the Trump administration. The economy is expected to grow by 2.2% in 2017 and dip slightly to 2.1% growth in 2018. Estimates for inflation and the unemployment rate were also lowered by board members.
Investors, eager to hear of the central bank’s plans moving forward, were told that the central bank plans to maintain its plan to raise interest rates three times this year. The central bank also outlined plans to reduce the $4.5 trillion balance sheet.
Balance sheet normalization is expected to be implemented this year as the economy continues to recover.
Inflation rates still remain a concern after the rate hike, missing the goal of 2%. The Fed states that they will continue to watch the inflation rate closely and that it is expected that the rate will remain below its target.
Stocks have remained relatively flat on the news, as investors dissect Yellen’s comments for signs of the next potential rate hike.