Fed Raises Interest Rates, Says Future Rate Hikes Will Reflect Lags Of Policy Effects

The Federal Reserve on Wednesday announced its widely expected decision to raise interest rates by another 75 basis points.

Citing efforts to achieve maximum employment and inflation at the rate of 2 percent over the longer run, the Fed announced its decision to raise the target range for the federal funds rate to 3.75 to 4 percent.

The Fed also said that ongoing increases in rates will be “appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

However, the central bank noted that future rate hikes will “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

The change in the language from the Fed comes following recent reports some officials are becoming increasingly uneasy about the pace of interest rate increases and the impact on the economy.

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the Fed reiterated.

The central bank added, “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

The Fed also said it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.

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