The US Federal Reserve did what was widely expected overnight, and raised its federal funds rate target range 25 basis points to 0.75-1% “in view of realised & expected labour market conditions & inflation”.
Its previous 25-point raise was in December.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, wanted no change. The other 9 members of the committee supported the raise.
The central bank’s open market committee said in its summary of economic conditions this morning:
“Information received since the federal open market committee met in February indicates that the labour market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the committee’s 2% longer-run objective; excluding energy & food prices, inflation was little changed and continued to run somewhat below 2%. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”
Looking ahead, the bank said: “The committee expects that economic conditions will 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.
“The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt & agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalisation of the level of the federal funds rate is well under way. This policy, by keeping the committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”
Attribution: Fed release.