The U.S. Federal Reserve raised key interest rates for the first time in nine years Wednesday, a landmark turnaround that symbolizes the confidence that the world’s largest economy has strengthened enough to graduate from near-zero rates.
The Fed raised the target range for the federal funds rate from 0 to 0.25 percent to 0.25 to 0.50 percent.
“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 Fed said in a statement after a Federal Open Market Committee meeting.
“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the committee decided to raise the target range,” it said. “The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
The 10-member committee voted unanimously for the rate hike.
The last time the Fed raised interest rates was in 2006, and the Fed has maintained near-zero interest rates to prop up the economy since the 2008 financial crisis.
Fed Chair Janet Yellen said the hike marks the “end of an extraordinary seven-year period.”
In determining the timing and size of future adjustments to the target range, the Fed said it will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation, including labor market conditions, inflation pressures and inflation expectations, and readings on financial and international developments.
“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the Fed said. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
In an economic projections report, the Fed forecast this year’s U.S. economic growth at 2.1 percent. Many participants in the FOMC meeting also forecast that next year’s interest rates would range from 1-1.5 percent, according to the report.