The US Federal Reserve raised its key interest rate today from a range of 0% to 0.25% to a range of 0.25% to 0.5%. The move came after the Fed’s committee improved its economic outlook. The Fed now expects the US economy to expand 2.4% next year, up from 2.3%. It also lowered its projection for unemployment in 2016 to 4.7%, down from 4.8%.

The Fed still has low expectations for inflation. The central bank has two goals: low unemployment and stable inflation. The Fed’s target for inflation is 2%, but right now it’s close to zero. The Fed sees inflation inching up in the years to come, but not hitting 2% until 2018. Known as “liftoff,” the Fed’s action is expected to be the first of more rate increases that will probably come in 2016. The last rate hike was June 2006. Federal Reserve Chairman Janet Yellen has said it would be good for the country to get rates up so that the Fed would have some wiggle room if the US economy sours.

The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers and savers. Savers will eventually see a little more interest on their deposits at the bank, and mortgage rates will gradually rise. In fact, Wells Fargo is already raising rates for borrowers, but hasn’t lifted rates for savers yet. Higher rates means borrowing costs increase for businesses, too. The rate hike, though gradual, is expected to wear on the strength of the US dollar.


The Fed move was widely expected. It is a sign of how much the economy has healed since the Great Recession. The central bank believes the US economy is strong now and no longer needs crutches.