The Federal Reserve raised a key interest rate in response to a strengthening U.S. economy and expectations of higher inflation, and it foresees three more rate hikes in 2017.
The Fed’s move will mean modestly higher rates on some loans. Its expectation of three rate increases in 2017 is up from two in its forecast three months ago.
The central bank said in a statement Wednesday after its latest policy meeting that it’s raising its benchmark rate by a quarter-point to a still-low range of 0.5 percent to 0.75 percent. The Fed had most recently raised the rate last December.
The Fed’s move, only the second rate hike in the past decade, came on a unanimous 10-0 vote.
The central bank also released updated forecasts that showed modest changes to its outlook for growth, unemployment and inflation, mainly to take account of a stronger economy and job market.
James Marple, economist at TDBank, said the Fed’s forecast of three rate increases next year, up from two, was the “only real surprise.”
“The move up is a signal that the Fed has become more confident in the economic outlook and that inflation will increasingly track closer to the 2 percent target,” Marple said.
The rate increase should have little effect on mortgages or auto and student loans. The Fed doesn’t directly affect those rates, at least not in the short run.
But rates on some other loans – notably credit cards, home-equity loans and adjustable-rate mortgages – will likely rise soon, though only modestly. Those rates are based on benchmarks such as banks’ prime rate, which moves in tandem with the Fed’s key rate.