Janet Yellen

Federal Reserve Chairwoman Janet L. Yellen removes her glasses as she testifies on Capitol Hill on Feb. 25. (Pablo Martinez Monsivais / Associated Press)

Jim Puzzanghera
December 16, 2015

The Federal Reserve on Wednesday raised its benchmark short-term interest rate for the first time in 9 1/2 years, providing a long-awaited vote of confidence for the recovery from the Great Recession by beginning to remove the last of the central bank’s extraordinary steps to boost economic growth.

Seven years to the day after lowering the rate to near zero, members of the policymaking Federal Open Market Committee edged it up 0.25 percentage point.

The move ended months of speculation about when the so-called federal funds rate, which affects terms for consumer and business loans, would begin inching back toward normal.
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In a statement approved by a unanimous vote, Fed officials said there “has been considerable improvement in labor market conditions this year” and that they expect low inflation to rise in the coming months.

Central bank policymakers said they acted now in part because it takes time for changes in the interest rate to affect the economy.

But they promised to go slow with future rate hikes, slowly reducing the stimulus.

“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the statement said.

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The rate “is likely to remain, for some time,” below the longer-run level of about 3.5%, it said.

Fed policymakers said they would watch economic data to determine “the timing and size” of future rate hikes.

A majority of the 17 members of the Open Market Committee expect the rate to rise to at least 1.375% at the end of 2016, according to projections released Wednesday.

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