The Federal Reserve will increase short-term interest rates for the first time in seven years – offering a vote of confidence for the economy while promising cautious future steps to avoid undermining the recovery.

The Fed has kept interest rates at the minimum since the recession in an effort to stabilize and stimulate the economy. Last Wednesday, it announced it will raise interest rates to a target range of .25 to .5%. In her press conference announcing the increases, Federal Reserve Chairwoman Janet L. Yellen said rates would rise gradually, and Fed officials expressed privately that further increases would only occur if the economy continues to grow. The short-term rates are expected to increase by about one percentage point each year for the next three years.

“The economic recovery has clearly come a long way, although it is not yet complete,” Yellen said. “Room for further improvement in the labor market remains, and inflation continues to run below our longer-run objective. But with the economy performing well and expected to continue to do so, the Committee judged that a modest increase in the federal funds rate target is now appropriate, recognizing that even after this increase monetary policy remains accommodative.”

After the announcement, multiple banks, including J.P. Morgan Chase, Bank of America and others said they would increase the prime rate, which affects the percentages on bank loans and late credit card payments, from 3.25% to 3.5%. The banks did not yet increase the payout rate for savings deposits, which typically is delayed months behind prime rate increases.   back...
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