WASHINGTON: As one of the longest economic expansions in American history chugs into its ninth year, the Federal Reserve said Wednesday it was raising its benchmark interest rate to a range of 1 per cent to 1.25 per cent.
The Fed accompanied the widely expected rate increase with a further show of confidence: a description of its plans to start reducing its portfolio of more than $4 trillion (Dh14.69 trillion) in bonds later this year. The Fed intends both measures to raise borrowing costs for businesses and consumers after almost a decade of historically low interest rates.
“Our decision reflects the progress the economy has made and is expected to make,” Janet L. Yellen, the Fed’s chairwoman, told reporters after the announcement.
Yellen may soon lose her role as the conductor of the Fed’s slow, steady and successful retreat. The Trump administration is beginning to consider whether Yellen should be replaced when her term as chairwoman ends in early February. Gary Cohn, President Donald Trump’s chief economic adviser, is heading the search for a new leader.
The administration has not ruled out a second term for Yellen, but Trump said on the campaign trail that he would “most likely” pick a new person. Yellen’s management of monetary policy may matter less than her disagreements with Trump about regulatory policy and Trump’s preference for people he knows.
Yellen said Wednesday that she had not had any conversations with the administration about its plans. She declined to comment on her interest in a second term.
If Yellen is replaced, she would become the first Fed leader in 40 years to serve only a single term. The last three leaders — Ben S. Bernanke, Alan Greenspan and Paul A. Volcker — were renominated by a president of a different party.
The Fed has increased its benchmark interest rate by a full percentage point over the last two years, after leaving the rate close to zero from late 2008 to late 2015.
Yellen and her colleagues have concluded that the economy is growing about as fast as it can. Low rates encourage borrowing and risk-taking; the Fed is now trying to raise rates to a level that neither encourages nor discourages economic activity. Most Fed officials expect that the Fed will raise rates at least one more time this year.
— New York Times News Service
