The Federal Reserve raised its key interest rate last week of 1.25% to 1.5% in what is an upgraded outlook on the 2018 economy. While this is the third rate hike in 2017, it is only the fifth such increase since the recession began in 2009. Still, many see this rate increase as a sign of confidence in an economy that has seen a recent awakening.
Regardless of the Fed’s cautious action, this recent hike comes on the heels of lagging inflation, increased growth, and historically low unemployment. Inflation has stayed below the Fed’s 2% annual target, but the Fed believes that the rate will increase to the target level in the near future. Growth had its best six months in over three years, hitting a 3% annual pace in the second and third quarters. Finally, unemployment reached a 17-year low of 4.1%. While these numbers may sound good, the Fed sees them as mixed signals about the United State’s economic future.
The Fed’s hike also considered the recently passed Republican tax reform. Specifically, the Fed projected that the reform would aid the economy. This projection included a faster-than-anticipated need to hike rates to offset any stimulus from the reform and to stabilize inflation.