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The Federal Reserve raised interest rates on Wednesday for the seventh time since the financial crisis.
In its monetary policy statement released Wednesday, the central bank increased the target range for its benchmark interest rate by 0.25% to a range of 1.75%-2%, the highest since September 2008. All eight voting members of the FOMC voted in favor of Wednesday’s decision.
In raising its benchmark interest rate, the Fed cited an economy that is growing at a “solid” rate, an upgrade from its characterization in May of an economy growing at a “moderate” rate.
The Fed added that job gains that have been “strong” in recent months and that, “Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.” In May, the Fed noted that household spending had “moderated” from its strong pace in the final quarter of 2017.
The most notable change to the Fed’s statement is the elimination of language suggesting that its policy would “for some time” remain accommodative.
In May, 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.” This language had been a feature of Fed statements for years. The clause was eliminated from the June statement. Ahead of Wednesday’s statement, some economists had speculated this language would be dropped.
This tweak suggests Fed officials see monetary policy as nearing its neutral rate setting, or the interest rate at which the economy would experience full employment and price stability, which the Fed has defined as 2% inflation.
Summary of economic projections
The Fed’s latest release also included an updated summary of economic projections, which are aggregated economic, labor market, and interest rate forecasts from Fed officials. In this release, the Fed raised its outlook for growth and inflation this year while lowering its expectations for the unemployment rate.
These projections also include the Fed’s “dot plot,” which illustrates expected future interest rates, and now shows most Fed officials see two additional rate hikes coming in 2018, bringing the year’s total to four.
In March, Fed officials were split on whether two or three additional rate hikes would be warranted over the balance of the year.
On the labor market side, Fed officials lowered their median expectation for the unemployment rate this year to 3.6% from 3.8% in March,. The Fed also lowered its expectations for the unemployment rate in 2019 and 2020 to 3.5% from 3.6%. Over the longer run, Fed officials still expect the unemployment rate to be 4.5%.