The U.S. Federal Reserve has raised the target range for its benchmark federal funds rate from the zero to 0.25 percent range to 0.25 to 0.5 percent, ending seven years of near-zero rates.
The Federal Open Market Committee said in a press statement that it has seen “considerable improvement” in labor market conditions this year, and said it is “reasonably confident” that inflation will rise over the medium term to its 2 percent objective.
“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 for the federal funds rate to 1/4 to 1/2 percent,” the statement 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 benchmark federal funds rate had been unchanged since December 2008, but there was increasing speculation in recent months about whether the economic recovery had been strong enough to withstand higher borrowing costs.
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