As expected, the Fed increased interest rates today. They are still at historically low levels and helping to make financing accessible for small business. Here is an analysis from Sean M. Davis, Policy Analyst, Congressional Joint Economic Committee:
“There were four noteworthy features of today’s monetary policy statement:
1. The Fed still believes that the stance of monetary policy is accommodative, which means that interest rates remain very low to assist economic growth.
2. The Fed noted that since its last meeting, incoming data indicate that output growth has moderated in recent months and the pace of labor market improvements has slowed. The recent economic soft patch is attributed by the Fed “importantly to the substantial rise in energy prices.”
3. The economy, according to the Fed, is “poised to resume a stronger pace of expansion going forward.”
4. The Fed also noted that inflation has risen this year and that “a portion” of the rise reflects “transitory factors.”
Analysis:
* In June, the Fed started to remove policy accommodation by increasing its target for overnight interest rates to 1.25% from the 1.0% level that had been in place for almost a year. Today’s action puts the target overnight interest rate at 1.5%.
* As in the past few policy statements, the Fed announced that policy accommodation (i.e. low interest rates to accommodate economic growth) can be removed “at a pace that is likely to be measured.”
* Financial market participants still feel that the Fed will increase short-term interest rates in the future, but perhaps not as quickly as was previously thought given recent signs of slower economic activity. The Fed may adopt a wait-and-see approach at its next meeting, waiting to raise interest rates further if incoming data have not confirmed that the recent soft patch in the economy was indeed temporary.
* The Fed’s monetary policy committee meets three more times this year: September 21, November 10, and December 14.”
Here is the full statement from the Federal Reserve.
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