For the first time in nearly a decade, the Federal Reserve Board’s open market committee raised the Federal Funds interest rate. The target range is now 0.25% to 0.50%.
“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range,” the Fed said in a Dec. 16 release.
Additionally, the Fed pointed to the improvement in the labor market, saying there had been considerable improvement in labor market conditions this year.
Among those improvements, the reported unemployment rate dropped to 5% in November with year-over-year wage growth of 2.5%.
The decision came after months of debate and hand-wringing by FOMC members, as the committee stresses it is data dependent. Fed Chair Janet Yellen had signaled a potential rate increase as data pointed to a stronger economy.
Douglas Ceto, president/CEO of CetoLogic, told CU Times that by raising the interest rates, financial institutions will have a clearer direction on the Fed’s intentions.
He added that the increase will impact members most dramatically with rates in mortgage and auto loans.
“Credit unions will more likely move rates up more in line with raising rates, which could slow home sales on a national basis; which, mind you, is what the Fed wants to do to avoid another housing bubble,” he said.
He added that the increase will definitely impact first quarter 2016.
“It will be very telling on what rate increase does to the overall economy, potentially later in first quarter. The economy will be riding on a high from the Holiday season. The real full impact of the change will be felt a little later,” he said.
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