Fed Hikes Interest Rates for First Time in Nearly a Decade

Date: December 17, 2015

Rates Increased 0.25%, Boost Said To Indicate US Economic Improvement

As had been expected, the Federal Reserve on Wednesday announced plans to increase the benchmark federal funds rate for the first time in nearly a decade. The move was characterized by some as an indication that the US economy has shown improvement following the recession. The New York Times, called the Fed’s “widely anticipated decision” a “vote of confidence in the strength of the American economy at a time when much of the rest of the global economy is struggling,” adding that it is “the most important and riskiest decision the Fed has made under the leadership” of Chairwoman Janet Yellen. USA Today said the move marks “a historic milestone” in the nation’s recovery. In “a nod to inflation that remains unusually low and vestiges of the downturn that continue to thwart a more vibrant economy,” Fed policymakers signaled that they “intend to nudge up rates even more gradually than anticipated the next few years.” The Wall Street Journal cited new projections that show officials expect the benchmark rate to rise to 1.375% by the end of 2016, 2.375% by the end of 2017, and 3.25% in three years, which would mean four quarter-percentage-point interest rate increases next year, four the year after, and three or four the year after that. McClatchy said that moving forward, “it will be gradually more expensive for ordinary Americans to carry debt on a credit card, cost more to borrow to take out a car loan, and even raise the price of getting a mortgage for a new home.”

What This Means For Small Businesses

Although an increase in the interest rate signals the economy may be recovering from the recession, progress towards growth remains slow. As NFIB Chief Economist William Dunkelberg said in the Los Angeles Times, for the average small business owner, “a quarter point does nothing really” because, “everybody’s already got their low-interest loans.” Dunkelberg said the rate increase comes in the midst of an economy that’s “just plodding ahead,” and businesses “don’t borrow money, even if it’s cheap, and invest it in plodding.” Ultimately, the Times concluded that “the major significance of the long-awaited rate increase could be more psychological.”

Additional Reading

The Washington Post, the Los Angeles Times, Reuters, the Wall Street Journal, and the Business Journals also covered the Fed rate hike.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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