Fed raises interest rates in U.S.

Interest Rate Rise

The Federal Reserve unanimously voted to raise interest rates for the first time in close to a decade.

The Fed set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, a significant hike from the previous range of zero to 0.25 percent, Bloomberg reported. The decision outlined four quarter-point increases in that range next year. Policy makers estimate a 1.375 percent interest rate by the end of 2016.

The Fed lowered the interest rate to almost 0 percent in December 2008 as a response to the financial crisis, the source noted.

“The committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective,” the Federal Open Market Committee said in a statement.

Major employment gains, a stronger labor market and more stable economic activity had lead most analysts to expect a rate hike in December. The raise was predicted by 102 out of 105 analysts that were surveyed by Bloomberg.

According to the source, the Fed revised its grading of risks to economic activity and the labor market to “balanced” from “nearly balanced.”

The Fed emphasized that the changes would be made gradually. According to the New York Times, interest rates on mortgages and other loans, investments and savings accounts will most likely stay low in the coming years.

Officials predict the economy will grow 2.4 percent in 2016 and that the unemployment rate would drop to a new low and reach 4.7 percent, the Times reported.

Inflation remains low, however, with the Fed predicting that it would again miss its 2 percent target next year.