Federal Reserve Raises Interest Rates for First Time in Nearly a Decade

Higher rates will affect savers, student loan borrowers and new homeowners.

December 16, 2015, 2:00 PM

— -- The Federal Open Market Committee (FOMC) announced today that it was raising its benchmark federal-funds rate by a quarter point -- the first increase in nine years.

The unanimous decision had been widely expected by investors after Federal Reserve officials, including Chairwoman Janet Yellen, had hinted that the central bank was ready to change direction after keeping interest rates between zero and one-quarter percent since December 2008 to encourage spending and bolster the economy.

The FOMC said in a statement that "there as been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."

The Fed’s decision will mean a little more money for savers but also higher borrowing rates for students, new homeowners and new car buyers. The last time the Fed raised rates was in June 2006.

FOMC members said they expect economic activity to "expand at a moderate pace" and "risks to the outlook for both economic activity and the labor market as balanced."

U.S. markets were in positive territory following the Fed's announcement.

Yellen told reporters at a press conference Wednesday afternoon that the economic recovery may not be complete but "it has clearly come a long way" and the "process of normalizing interest rates is likely to proceed gradually."

Employers have added 2.3 million jobs this year and job growth has averaged an estimated 218,000 per month. The unemployment rate, at 5 percent, is down six tenths of a percentage point from the end of last year.

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