Federal Reserve officials raised interest rates for the first time this year and forecast a steeper path for borrowing costs in 2017, saying inflation expectations have increased “considerably” and suggesting the labor market is tightening.
The Federal Open Market Committee cited “realized and expected labor market conditions and inflation” in increasing its benchmark rate a quarter percentage point, according to a statement Wednesday following a two-day meeting in Washington. New projections show central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.
The central bank said monetary policy supports “some further strengthening in labor market conditions and a return to 2 percent inflation,” adding the word “some” in an indication that officials see less room for improvement in the job outlook. The word “strengthening” also replaced “improvement.”
Inflation has firmed toward policy makers’ 2 percent target, unemployment has dipped further and President-elect Donald Trump has pledged growth-fueling tax cuts and infrastructure spending that could warrant a faster pace of Fed tightening. Trump has accused Fed Chair Janet Yellen of keeping rates low to help Democrats, a charge she denied. Now, higher interest rates have the power to blunt the impact of any fiscal stimulus.
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