Zero-interest-rate policy is over, but don’t expect rapid rate hikes

The Federal Reserve raised interest rates for the first time since 2006.The Fed’s short-term rate had kept near zero for seven years, marking an unprecedented era in the history of U.S. monetary policy triggered by the worst financial crisis and economic downturn since the 1930s.

Policy makers on Wednesday voted 10 to 0 to lift the Fed’s short-term borrowing rate by a quarter-point to a range of 0.25% to 0.5%.

Fed officials said an improved economy was ready for a rate hike, pointing to “solid” consumer spending, a rebounding housing market and stronger business fixed investment. The central bank also took careful note of a healthier labor market in which the unemployment rate has tumbled to 5% — just half as much compared to the early stages of a recovery that began in mid-2009.

The central bank didn’t change its so-called dot plot for 2016 that projects one rate hike each quarter. According to this forecast, the target fed-funds rate would reach a 1.4% rate at the end of 2016.

The median path for the “dot plot” declined by 20 basis points in 2017 to 2.4%, and 10 basis points in 2018 to 3.3%, suggesting one fewer cut over the two years than the FOMC had projected in September.

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