Members of the Federal Reserve's Federal Open Market Committee (FOMC) unanimously decided to raise the Fed funds rate by 0.25 percentage points to the 2.00% and 2.25% on Wednesday, 26. The ruling marks the third increase in interest rates by the US monetary authority this year.
The rise was widely expected by financial market economists. Of a total of 75 institutions consulted by the Broadcast, they all expected a new 25-basis-point increase in the Fed funds rate, which has thus reached a level not seen since April 2008.
In justifying its decision to continue the monetary tightening that began in December 2015, the Fed said in a statement that information received since the meeting in early August indicates that the US labor market continued to gain momentum and that the activity expansion at a "strong" pace.
Earlier this month, the country's jobs report showed that the average hourly wage of the American worker advanced 2.9% year-on-year in August, at the fastest pace in the current cycle of economic expansion. In addition, the index of industrial activity measured by the Institute for Supply Management (ISM) reached the lowest level in 14 months in the August data.
In addition, the Fed also noted that household spending and fixed investment firms have grown strongly since August and that inflation remains close to the central bank's 2 percent target. The price indicator closely monitored by the central bank reached the highest level in six years in reading for July, rising 2.0% in relation to the same month of the previous year, reaching the mark desired by the monetary authority.
Also in the document, the Federal Reserve reiterated that it hopes to raise interest rates gradually, which would be "consistent with sustained expansion of economic activity, strong labor market conditions and inflation close to the 2% target." Moreover, according to the central bank, the risks to the economic outlook appear to be "more or less balanced."
The Fed also withdrew the "accommodative" statement from the statement. There was already a discussion among analysts that the central bank could take that word amid rising interest rates it has been promoting since 2015. Since then, US interest rates have been high on eight occasions, taking into account the meeting on Wednesday .
Fed leaders boost projection for GDP growth
The 16 leaders of the Federal Reserve have raised the projection of the United States Gross Domestic Product (GDP) for this and next year and kept the estimate for 2020 unchanged from estimates released after the monetary policy in June.
By 2018, median growth estimates for the US economy rose from 2.8% in June to 3.1% now. For 2019, the projection advanced from 2.4% to 2.5%. By 2020, Fed officials' estimates have remained at 2.0% and by 2021 the central bank forecasts growth of 1.8% of US GDP.
In the long-term projection, the median of the projections of the leaders points to expansion of 1.8% of the American GDP, the same value estimated in the meetings of March and June.
