Fed Hikes Interest Rates
The Federal Reserve System announced Dec. 16 a quarter-point increase in its benchmark target for interest rates, acting because “the risks to the outlook for both economic activity and the labor market" are balanced.
The 10-0 decision by the Fed’s top policymakers marks the first increase in the fed funds target rate since the first half of 2006. Fed funds is what banks charge each other for overnight loans.
The Federal Open Market Committee said at the conclusion of its two-day meeting in Washington, D.C., that the new target rate is 0.25% to 0.5%, up from the previous range of 0% to 0.25%, where it has been since December 2008. American Trucking Associations Chief Economist Bob Costello said he had been expecting the increase and that he thinks it will help trucking.
“This is a good thing. It shows that the Fed thinks the economy can withstand the increase,” Costello said in an interview.
“This will also improve bank margins — and that could spur growth through more lending. Why should banks take a risk when the interest rates are so low?” he asked.
Although the Fed’s statement concerns lending among banks, Costello said that other interest rates, including the prime rate for business borrowers, usually follows along the same path.
Costello predicted this will be the first of several increases. FOMC meets eight times a year, and Costello said he thinks the fed funds target will be 1.0% or 1.25% a year from now.
