The US Federal Reserve decided overnight to raise its federal funds rate to a range of 1-1.25%.
The central bank dropped its target range to 0-0.25% in December 2008 and held it there for 7 years. In December 2015 it lifted the target range to 0.25-0.5%, and raised it again in December 2016 & March 2017, each time by 25 basis points.
One member of the bank’s open market committee, Federal Reserve Bank of Minneapolis president Neel Kashkari, wanted to hold the rate today. The vote to raise was 8-1.
The bank expects to start a “balance sheet normalisation programme” this year, by gradually decreasing reinvestment of principal payments to reduce its holdings of Treasury securities.
The committee said it expected economic conditions would “evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
Attribution: Bank release.