Members of the Federal Open Market Committee voted to increase overnight interest rates in the meeting of March 14-15 by 25 basis points for the first time this year to between 0.75% and 1.0%, as expected by a majority of analysts.
The FOMC's statement pointed to its dependence on the data available to the members since the end of the January meeting, which asserted the strength of the labor sector while economic activity expanded moderately, as labor gains were solid, while the unemployment rate didn't change much in recent months.
Members pointed to moderate growth in family spending, while fixed-income investments consolidated somehow, as inflationary pressures rose in recent quarters towards the bank's long-term 2% target, while without energy and food prices, the inflation didn't move much, still below the target of 2%.
Members also talked about the Committee's work to endure a steady growth in job opportunities and to stabilize prices, while members expect the economy to expand moderately alongside gradual tightening of the monetary policy, as inflation is expected to settle at 2% in the medium term, while considering the short-term risks for the economy as balanced, as the committee will keep monitoring inflation and global financial and economic developments.
As of 08:58 GMT, the dollar index, tracking the greenback against a basket of currencies, fell to 100.74 from the opening of 100.69, with an intraday low at 100.73, and a high at 101.71.
On the same note, members said that according to the labor conditions and current inflation rates, the Committee decided to increase borrowing rates on federal money to between 0.75% and one percent, while keeping the monetary policy accommodative to support the labor sector and boost inflation to 2%.
And as for specifying a timeline for interest rate changes, the Committee said it's monitoring current and expected economic conditions, specially in regard to its targets of full employment and 2% inflation, while taking into consideration the data, including employment and inflation indices and forecasts, alongside global financial readings, and in case inflation didn't reach 2%, the Committee will keep an eye on the actual and expected progress to the target.
Members expect economic conditions to improve in a way that allows a gradual tightening of policy that would eventually push interest rates to the expected long-term targets, while asserting the actual policy path will depend on the aforementioned economic forecasts, and other than that, the Committee will keep up its current policy of reinvesting its holdings of debt and mortgage-backed securities and offering them in public auctions to trim them down in the long term and keep the conditions accommodative.
On the same note, Fed Chair Yellen said in a post-meeting press conference that they increased interest rates after witnessing strong improvement in the labor sector and inflation towards the bank's 2% target, while warning a long wait before tightening the policy would later force the bank to move quickly when inflation breaks out, increasing the risks of economic recession.
Yellen also pointed to the fast that economic forecasts didn't change a lot compared to the December meeting of 2016, as economic expectations depend on each member's individual viewpoint, while pointing to the effects the monetary policy could have growth and how hard it ts to calculate that impact, asserting that the policy decisions aren't 't based on a preset path, while the Federal Reserve will work on lowering ints balance sheet after normalizing the policy.
Finally, Yellen said if the economy kept improving and risks kept receding, the bank will continue to hike interest rates gradually, while markets should understand that the economy is nearing its targets, as the current interest rates remain low. The dollar value growth is expected to raise pressure on inflation, while Yellen hopes for gains in wages, but the target remains fixed on jobs, as she mentions the reasons behind wage hikes are higher productivity, which is positive for wages.