The wait is over: Fed hikes rates

December 16, 2015

WASHINGTON (12/16/15 UPDATED 1:22 p.m. ET)--The last time the Federal Reserve hiked interest rates, the United States was still two years away from watching the economy crumble under its feet. Nearly a decade later, the Fed has finally decided to begin reining in its gracious monetary policy stance, and today announced it would raise rates by a quarter point.

“Finally,” said CUNA Chief Economist Bill Hampel. “We can all get back to work now and quit speculating on when rates will eventually rise.”  

In the policy statement released at the end of its two-day meeting today, the Federal Open Market Committee (FOMC), which sets monetary policy for the Federal Reserve, said that it has witnessed considerable improvement in the labor market this year, and is reasonably confident that inflation will rise in the medium term to its 2% objective.  

“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the committee decided to raise the target range for the federal funds rate to 0.25% to 0.5%,” the committee said.

With the first rate hike since 2006 in the books, the question becomes when will the next step up take place. In its statement, the Fed said that despite the increase, it expects economic conditions to evolve in a manner that “will warrant only gradual increases in the federal funds rate.”

Hampel added that based on the Fed’s statement, the pace of rate increases next year will be modest and therefore unlikely to have a major impact on credit union operations. Of crucial importance will be how fast consumer loan rates rise compared with deposit rates.

The December meeting was the FOMC’s last of the calendar year. Its next meeting is scheduled for Jan. 26-27.