Federal Reserve approves interest rate hike in March

The Federal Reserve approved a .25% rate hike at its March 15 meeting. Fed officials say the rate increase is an indication of growing strength and confidence in the U.S. economy.

The rate hike, approved by the Federal Open Market Committee, raises the federal funds rate to a target range of between .75% to 1%. It represents the second Fed interest rate hike in three months after the committee approved a .25% increase in the rate in December.

Federal Reserve Board Chairwoman Janet Yellen said in remarks at a press conference after the vote that the Fed’s decision to raise rates reflects a positive outlook for the economy.

“The economy continues to expand at a moderate pace,” Yellen said in her remarks. “Solid income gains and relatively high levels of consumer sentiment and wealth have supported household spending growth. Business investment, which was soft for much of last year, has firmed somewhat, and business sentiment is at favorable levels. Overall, we continue to expect that the economy will expand at a moderate pace over the next few years.”

The Fed projects median GDP growth of 2.1% in 2017, and that the unemployment rate will fall from its current level of 4.7% to 4.5% by year’s end.

Yellen said at the press conference the Fed would continue to monitor developments in the economy and inflation in determining future rate hikes. “We continue to expect that the ongoing strength of the economy will warrant gradual increases in the federal funds rate to achieve and maintain our objectives,” she said.

What rate hikes will mean for investors and borrowers remains unclear.

While many investors view the Fed rate hike as a sign of growing confidence in the U.S. economy, others are concerned about the impact of future rate hikes on the stock market and economic growth.

“With equity growth momentum nearing its peak and rates increasing further with a hawkish Fed, the asymmetry for equities is turning increasingly negative,” a team of Goldman Sachs analysts wrote, as quoted in a March 15 article in Fortune Magazine. “Higher bond yields are likely to weigh on equities and reduce their buffer for shocks.”

For consumers, the rate increase will likely mean they will pay more for mortgages, credit cards or loans, but the rate hike also will provide better returns on certificates of deposits and other interest-bearing accounts, analysts say.

To learn more about the Fed’s rate hike, click here.