Fed Finally Lifts Key Interest Rate From Near Zero

The Federal Reserve is raising interest rates after seven years of record lows. But it’s signaling that further rate hikes will likely be made slowly as the economy strengthens further and muted inflation rises.

The Fed’s move Wednesday to lift its key rate by a quarter-point to a range of 0.25 percent to 0.5 percent ends an extraordinary seven-year period of near-zero rates that began at the depths of the 2008 financial crisis. Consumers and businesses could now face modestly higher rates on some loans.

The Fed’s action reflects its belief that the economy has finally regained enough strength 6{ years after the Great Recession ended to withstand higher borrowing rates. But the statement announcing the rate hike said the committee now expects “only gradual increases” in rates.

Investors’ immediate reaction to the Fed’s announcement, which was widely anticipated, was muted. Stocks moved slightly up. Higher interest rates in the U.S. tend to cause the dollar to strengthen against other currencies.

The bond market didn’t’ react much. The yield on the 10-year Treasury note held steady at 2.27 percent.

Guest

• Marilyn Geewax, senior business editor for NPR. She tweets @geewaxnpr.

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