Federal Reserve Raises Interest Rates By 0.25 Percent

Mar 15, 2017
Originally published on March 15, 2017 6:30 pm
Copyright 2017 NPR. To see more, visit http://www.npr.org/.

AUDIE CORNISH, HOST:

The Federal Reserve is raising interest rates again. Today the Fed pushed the federal funds rate up a quarter of a percentage point. It's only the third time they've raised interest rates since the 2008 financial crisis, but it's the second increase in just three months. As NPR's John Ydstie reports, that signals the Fed is embarking on a faster pace of rate hikes.

JOHN YDSTIE, BYLINE: It was a full year between the Fed's first rate hike and its second increase this past December. Yellen said the slow speed was necessary because of the shocks the economy had absorbed. So she was asked, what's the takeaway message from today's rate hike?

(SOUNDBITE OF ARCHIVED RECORDING)

JANET YELLEN: The simple message is the economy's doing well. It's performed well over the last several years. The unemployment rate has moved way down, and many more people feel optimistic about their prospects.

YDSTIE: Yellen acknowledged that the outlook is not bright for some workers, especially those with low skills and little training. But she said if the economy continues on its current path - creating jobs and moving inflation closer to the Fed's 2 percent target - consumers should expect more rate hikes.

Fed policymakers expect another two rate hikes this year and three in 2018. Yellen was asked whether President Trump's promises of big tax cuts and infrastructure spending, which could produce higher inflation, had prompted the Fed to hike interest rates today. She said no.

(SOUNDBITE OF ARCHIVED RECORDING)

YELLEN: We have not tried to map out what our response would be to particular policy measures. We recognize that there is great uncertainty about the timing, the size, the character of policy changes that may be put in place.

YDSTIE: Yellen said there will be plenty of time for the Fed to respond once the details of tax cuts and other policies become clear. Some analysts, however, feel the Fed could risk a run up in inflation if it doesn't respond to Trump's proposals soon.

One area where the Fed policymakers and the Trump administration have different views is on the economy's future growth rate. The Fed predicts growth just below 2 percent a year. President Trump has promised growth of 4 percent a year - a number that's drawn skepticism from many economists. But Yellen said she didn't necessarily see that as a source of conflict between the Fed and the administration.

(SOUNDBITE OF ARCHIVED RECORDING)

YELLEN: I don't believe it is a point of conflict. We would certainly welcome stronger economic growth in the context of price stability.

YDSTIE: The key is price stability. Yellen is saying she would welcome stronger growth but only if it doesn't ignite inflation. That would require the economy's potential growth rate to improve and that requires higher worker productivity.

(SOUNDBITE OF ARCHIVED RECORDING)

YELLEN: I've certainly urged Congress and the administration to consider policies that would boost productivity growth and raise the economy's potential to grow. I think those would be a very welcomed changes that we would like to see.

YDSTIE: Those policies include more spending on education and training. Consumers will likely see some increase in rates they pay for auto loans and adjustable rate mortgages because of today's rate hike. Though, many rates had already adjusted upward ahead of the move. Both stocks and bonds rallied after Yellen again emphasized a gradual pace of rate hikes. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.