December 15, 2016
On Dec. 14, the Federal Reserve (Fed) increased its benchmark short-term interest rate by 0.25 percent to a target range of 0.5 percent to 0.75 percent. The previous range was 0.25 percent to 0.5 percent. It was the Fed's first vote this year to increase the federal funds rate, the rate at which banks lend to one another overnight, and it came a year after the Fed raised rates for the first time since 2006.
Most investors had expected the latest Fed decision, yet the move to increase rates this year happened more slowly than originally expected. At the end of 2015, the Fed signaled that in 2016 it would raise interest rates four times, by a quarter-point each time. But throughout the year, the Fed repeatedly downgraded its forecast for economic growth during the year, prompting caution about tightening too quickly.
The recent rate increase provides some reassurance that the Fed believes the U.S. economy will continue to improve. Fed officials also signaled that they expect to raise short-term rates in 2017 by another 0.75 percentage point – likely in three quarter-point moves.