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12/15/2016

US Federal Reserve Bank Raises Interest Rates by 25 Basis Points

Fed Chair Yellen: “The economic outlook is of course overwhelmed with uncertainties. Financial and other economic policies may affect the outlook. We will continue to assess economic conditions in line with full employment predictions and inflation targets of 2 percent when we take our policy decisions”…

The US Federal Reserve Bank (FED) raised the policy interest rate to an interval of 0.50 to 0.75 percent with an increase of 25 basis points. FED also raised the number of interest rate adjustments for the next year to three times from two. The average interest rate expectation of 17 FOMC members for the end of 2017 increased to 1.4 percent from 1.1 percent. Such an expectation points out that FED can make three interest rate adjustments next year.

According to the communiqué published upon the December meeting of the Federal Open Market Committee (FOMC) that took two days, 10 FOMC members led by FED Chair Janet Yellen unanimously took decision on raising the benchmark interest rate to an interval of 0.50 to 0.75 percent from an interval of 0.25 to 0.50 percent. The disclosure is quoted as “FOMC took decision on raising the federal funding rate to an interval of 0.50 to 0.75 percent under the light of labor market conditions and the developments witnessed in the inflation rate.”

FED Chair Yellen, “We expect the economy of the country to continue with the good performance achieving the inflation target of 2 percent within the next two years”

The US Federal Reserve Bank (FED) Chair Janet Yellen held a press conference upon decision on raising the interest rates by the Federal Open Market Committee (FOMC). Yellen spoke as follows: “My colleagues and I have confirmed the major progress achieved in line with our targets of full employment and price stability.” Yellen vocalized that they expect the economy of the country to continue with the good performance achieving the inflation target of 2 percent within the next two years.

Yellen reminding that FOMC members raised their interest rate expectations by 0.25 percent for the coming years, stated that the revision which she described as “a minor adjustment” also reflects a loosening foreseen in financial policies besides the positive change in employment rates and inflation estimates.

Yellen made the following statement: “The economic outlook is of course overwhelmed with uncertainties, and the members will adjust their evaluations regarding the most suitable interest rate policies according to changes in risks. As a number of observers mention, financial and other economic policies may affect the outlook. We will continue to assess economic conditions in line with full employment predictions and inflation targets of 2 percent when we take our policy decisions.”

FED revises its expectations for the US economy

The FED has also updated its expectations on the US economy in the December meeting. FED raising the average growth rate estimate for the current year to 1.9 percent from 1.8 percent, also increased the growth rate expectation for the next year to 2.1 percent from 2.0 percent. The growth rate projections of the Bank for 2018 and 2019 are declared as 2 percent and 1.9 percent respectively. These rates were at levels of 2 percent and 1.8 percent in previous projections published in September. FED having raised the expectation for the inflation rate for the current year to 1.5 percent from 1.3 percent, retained the expectations for the inflation rate for the next two years as 1.9 percent and 2.0 percent with no changes. The estimate of the Bank for the inflation rate in 2019 also remained as 2 percent. The average unemployment rate has been decreased to 4.7 percent from 4.8 percent for the current year and to 4.5 percent from 4.6 percent for the next year. The Bank foresees a balanced proportion of 4.5 percent for the unemployment rate in 2018 and 2019.